Stocks Portfolio Construction

In my previous posts, I have captured my thought process about selection of stocks as well as the reasons and rationale for the same. Over a period of time, I am trying to refine the decision making process and trying to simplify my overall approach. At one point of time, doubts started to creep in when the number of stocks exceeded 20. Was I over-diversifying or was I being too cautious?  Caught in this whirlpool, I decided to read up a bit and pick brains of few experts I hold I high stead. Along the way, I stumbled upon this wonderful article about a fund manager who manages just 12 stocks.

Now, my confusion just got too much and I decided I needed to do something about this and take the bull by the horns. I have a family, a career, my hobbies and many more such stuff, than to be worried about reading balance sheets. Having said that, having only 8 stocks and betting on them isn’t my cup of tea.So, what will I do?

I plan to have 3-5 mini portfolios each having a dedicated mandate. Across these portfolios (each can have up-to 10 stocks), I aim to encompass all Sectors, Market Caps, PSU/Private and Niche plays. I will define 5 portfolios with a specific mandate and a max. allocation as a relation to overall portfolio. These are the portfolios, their mandates and relative max. allocations.

  1. Dividend Masters (max: 20%) – Comprised of mainly cash rich PSUs, market leaders in their own regard, providing regular dividends (even after 2016 budget announcements)
  2. Bell-weather Giants (max: 40%) – Comprised of mainly bluechip Tech, Pharma, Banking or consumer giants who provide the stability to the portfolio
  3. Growth Spurts (max: 30%) – Comprised of Mid/Small cap companies, niche play companies, undiscovered gems (atleast I hope so)
  4. Agri Earners (max: 5%) – Comprised of companies catering to the agricultural development of the country. See my previous post for more details
  5. Defence Savers (max: 5%) – Comprised of companies catering to the defence sector

This is my current thought process and I aim to play around with the percentages once I become more picky about the sectors I want to invest more in. Some ground rules for my stock picking would be:

  • Dividend masters will be in the range of 10% (min) to 20% (max)
  • Bell-Weather Giants will never go below 30% of my portfolio and shall be limited to 50% of overall portfolio at the upper side
  • Growth Spurts will never exceed more than 50% and go below 20%
  • Agri Earners and Defence savers will never exceed 10% each
  • A particular stock will not be more than 15% of a portfolio i.e. each portfolio shall have at-least 6 stocks.

Having said this, I mapped our combined portfolio into this strategy and this is how it looks. Please note that I have churned some stocks and taken some strategic decisions on a couple of counters based on my understanding.

P160319

I am yet to invest into Agri or Defence sectors and this snapshot gives me the right impetus to focus my upcoming investments. With this strategy, I hope I will be able to beat the index and a potential MF returns by some percentage points.

I would like to thank my friend Rajesh Katikam for asking the pertinent questions which forced me to clarify my own thinking to come up with this strategy.

Advertisements

3 thoughts on “Stocks Portfolio Construction

    • For Agri, I had an earlier post. Dhanuka is definitely amongst the picks. I am researching on a couple more.

      Defence is a more complicated play. Astra is definitely up in the list. Reliance Defence is ok, but I am skeptical cos the debt position and due to history. In general, there are many more options as in Tata Motors, Mahindra & Mahindra, L&T, Tata Elxsi, BEML, BEL etc. I plan to do a post on defence sectors soon, but am sure your picks will feature in them.

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s