bill dodd and joanne stuhmcke - australian investors assoc · weinstein, stan (1988), secrets of...

Practical Management of a Stock Portfolio

Bill Dodd and Joanne Stuhmcke

Gold Coast July 30, 2012

Copyright © Dodd & Stuhmcke 2012 Practical Management of a Stock Portfolio

AUSTRALIAN INVESTORS ASSOCIATION DISCLAIMER

This Disclaimer is made for the purposes of the Corporations Act 2001 as amended by the Financial Services Reform Act 2001 ("the Acts").

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The Australian Investors Association ABN 75 052 411 999 ("AIA") is a non-profit association that aims to assist investors become more knowledgeable and independent. In furthering its aims the AIA offers general information through its meetings. The AIA has no Australian Financial Services Licence (“AFSL”) under Part 7 of the Corporations Act 2001 as amended.

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Provides Information only

This presentation has been prepared for information purposes without consideration of any reader's specific investment objectives, personal financial situations or needs. Because of this, no reader should rely upon the information and/or recommendations presented. Readers should, before acting on any information contained herein, consider the appropriateness of the information, having regard to their objectives, financial situation and needs.

The AIA believes that the material contained in this presentation is based on the information from sources that are considered reliable and is accurate when issued. However, the AIA does not warrant its accuracy or reliability. All views and information expressed by the AIA, its officers, agents, representatives, and employees are for the purposes of discussion only.

If this presentation, or any information, relates to the acquisition, or possible acquisition, of a particular financial product, participants should obtain a product disclosure statement relating to the product and consider that statement, and should consult a licence person before making any decision about whether to acquire the product.

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Copyright © Dodd & Stuhmcke 2012 Copyright © Dodd & Stuhmcke 2012

Investing is not easy

•They lack information (education)

•They do not have a plan

•They fail to understand risk

•They do not manage their open positions

•They do not understand investor psychology...


Investors often do not perform to expectation because:

Some sources of information

1. Books

Guppy, Daryl (2004), Trend Trading, Wright Books

Hull, Alan (2008), Blue Chip Investing, Wright Books

Montgomery, Roger (2010) Value.able, My 2 Centsworth Publishing

Nicholson, Colin (2006), Psychology of Investing, Wilkinson

Nicholson, Colin (2009), Building Wealth in the Share Market, John Wiley

Roth, Martin (annual), Top Stocks, Wright Books

Weinstein, Stan (1988), Secrets of Profiting in Bull and Bear Markets, Irwin


2. Web sites

Incredible charts*

http://www.incrediblecharts.com.au/

Australian Investors’ Association

http://www.accc.gov.au/content/index.phtml/itemId/287387/fromItemId/277639

Alan Hull

http://www.bluechipreport.com.au/sample/

Colin Nicholson

http://www.bwts.com.au/

Darryl Guppy

http://www.guppytraders.com/

Australian Securities Exchange*

http://www.asx.com.au/

Some sources of information

http://www.incrediblecharts.com.au/

http://www.accc.gov.au/content/index.phtml/itemId/287387/fromItemId/277639

http://www.bluechipreport.com.au/sample/

http://www.bwts.com.au/

http://www.guppytraders.com/

http://www.asx.com.au/


AIA investors forum

http://www.investors.asn.au/forum/index.php

Some definitions:

• Investors and traders

• Stocks and shares

• The index….


The Investment Plan

‘... successful investors treat their investing as though they

were running a business.’

(Colin Nicholson, Building Wealth in the Stock Market)

• Your business plan for your investing business

• Guide or reference point for all your decisions

• Should reflect your style, objectives, risk tolerances

• Should be individual to you

• Must be written down!


What is in an investment plan?

Unbreakable rules as well as guidelines to

manage the investment process.

Should also include:

• Purpose, goals and objectives

• Investment style

• Investment approach or strategy

• Portfolio management strategies

• Risk management strategies


Goals and Objectives

Before you start to invest, think about your goals

and objectives:

• Why you are investing – what is your purpose

or ‘mission statement’?

• What are you trying to achieve?

how much return?

how do you want to mitigate risk?

do you want to develop investing skills?


Practical Exercise

• Individually, answer the questions (5 Mins) • Focus on answering Questions 1, 2, 3 &4

(we will review these questions together)

• Consider Questions 5 -9 only if you have time

(reflect further at home when you have more time)

Use what you learn in the workshop throughout the morning to expand on your answers.


Exercise Review

• How will writing down a purpose for investing keep you focused and motivated? •Why is the importance of an investment style or particular strategy being suitable for you? • How easy or hard was it to write down specific goals? • Have you thought about how you are going to invest i.e. What strategies you are going to use


Try using the SMART goal setting method to refine your goals when you

have time

Investment Plan Summary

An investment plan should:

• Provide a guide to what to buy and sell

• Indicate how to manage risk

• Protect you during periods of uncertainty

• Start simply but grow and evolve as you

continue to invest

IT SHOULD NOT JUST BE WRITTEN AND PUT

IN THE BOTTOM DRAWER & FORGOTTEN!


Fundamental Analysis

•What is fundamental analysis

•Pro’s & Con’s

•Overview of fundamental ratios

•Filtering using fundamental data

•Practical Exercise using fundamental data


Fundamental Analysis

Fundamental analysis attempts to determine the

value of a company by analysing the financial

data from the annual report and other qualitative

data about the company and environment in

which they operate.


Fundamental Information

• Company information

• Financials

• Research & analysis

• Dividend history

• Directors & dealings

• News & announcements

• Shareholder Information


Fundamental Pro’s & Con’s

In support of fundamental analysis:

• Objectivity

• Long Term focus

• Value

• Increased understanding

• Sleep at night factor

The problems with fundamental analysis:

• Time consuming

• Market sentiment

• Timing

• Based on assumptions

In summary, it provides key information on which stocks have the best value and

should be profitable but it may not be the best tool to use to determine when to

buy a particular stock.


Fundamental Ratios

• Price Earnings Ratio (P/E)

• Price Earnings Growth Ratio (PEG)

• Dividend Yield (DY)

• Return on Equity (ROE)

• Market Capitalisation (Market Cap)


Price Earnings Ratio (P/E)

Measures the time it would take for an

investor to recoup their initial outlay in the

form of return

• Low PE is better than a high PE

• Growth companies will often have higher

PE’s

• Enables comparison between companies

• Some drawbacks including dependence

upon price


Price Earnings Ratio (PE

PE Ratio = Share Price

Earnings Per Share

e.g. $1.00 share price = PE 10

10 cents earning per share

$1.00 share price = PE 5

20 cents earning per share


Price Earnings Growth Ratio (PEG)

Useful as a check on whether a P/E is

justified or not

• PEG of 1 is seen to be fair value

• PEG of greater than 1 indicates a more

expensive stock


Price Earnings Growth Ratio (PEG)

PEG Ratio = P/E Ratio

Growth Rate in %

e.g. PE 10 = PEG 1

10% Growth

PE 20 = PEG 2

10% Growth

PE 10 = PEG 0.5

20% Growth


Dividend Yield

Measures the return an investor gets from

a share

• Fluctuates with share price

• Can be compared with returns from other

investments

• Can be grossed up by adding back the

franking credits

• Need to be careful of artificially high

yields


Dividend Yield

Div Yield = Dividend per share x 100

Share Price

e.g. 5 cents per share = DY 5%

$1.00 per share

$1.00 share price = DY 2%

$50.00 per share


Return on Equity (ROE)

Measures the return a company achieves with

shareholders' funds

• Higher ROE over reasonable period

• High ROE good D/Y & growth

• Good indicator for overall performance

• Can be compared with returns from other

investments


Return on Equity (ROE)

ROE = Net Profit x 100

Shareholders Equity

A ROE of 10% to 20% indicates healthy

growth


Market Capitalisation

Measures the value that the market puts on

the company

• Generally, higher market capitalisation, the

more liquidity

Market Cap = Number of shares outstanding x

Share Price


Fundamental Filter

Fundamental filter parameters:

• PE less than 16

• PEG less than 1.1

• DY greater than 4%

• ROE greater than 12%

• Market Cap greater than $50,000,000


Creating a Fundamental Search

Fundamental

filtering


Fundamental Search

On-line live demonstration


Other Options

Stock Doctor www.lincolnindicators.com.au

MyClime www.clime.com.au

Team Invest www.teaminvest.com.au

Skaffold www.skaffold.com


http://www.lincolnindicators.com.au/

http://www.clime.com.au/

http://www.teaminvest.com.au/

http://www.skaffold.com/

Other Useful Criteria

• Is the PE at the high or low end of the average PE

range?(from the Company Wrap)

• Is the PE above or below the market P/E?

•Does the company have high debt to

equity?

• Is the Dividend Yield franked?

•Is the Earnings Per Share forecast to

grow?


Other Useful Criteria

• How has the share performed in comparison to the sector

or the All Ordinaries (Company Wrap)

• In which sector does the

company operate?

• Are dividends stable? (Higher percentage = greater stability)


Practical Exercise

1. Determine your rules for choosing stocks to buy. Hint: Either use PE, PEG, DY, ROE as is or refine further or add one or two more guidelines from the ‘Other useful criteria’ list on page 6 of your workbook. Remember – keep it simple!

2. Analyse data from a fundamental filter search and cull stocks that don’t meet your rules

3. Choose 5 stocks to add to your ‘notional portfolio. Make sure you refer to the Existing portfolio and Portfolio Guideline notes on Page 5 or your workbook.


Exercise Review


Technical analysis of stocks


Technical Analysis see ASX web site http://www.asx.com.au/resources/education/classes/shares/index.htm

Technical analysis is the study of the price and volume

movements of a stock or market.

It is based on the belief that everything that is known about

a stock is reflected in the share price and the volume of

shares traded.

Technical analysis tells investors when to buy or sell by

providing insights into market sentiment and emotion

Covers many techniques we are able to cover only a few …


1. Different types of charts

2. Classical methods

3. Problems of randomness of data

4. Pattern recognition

5. Software for technical analysis…


An Introduction to Technical Analysis

1. Different chart types

Technical analysis uses data based on

price open, low, high, close and volume.

The data are presented as charts. There are many different

types of charts and we consider only three…


Line chart (monthly) of CSL

Bar chart (monthly) of CSL

Open, High, Low & Close

Candlestick chart of CSL (monthly)

Open, High, Low & Close

The last three charts considered O, H, L, C

What about volume?...


Candlestick chart of CSL (monthly) with volume

2. Classical technical methods

(a) Phase analysis

(b)The trend line

(c) Support and resistance…


2(a) Phase analysis (Dow Theory)

• Proposes that markets are cyclical

•That markets go through bull and bear cycles

• Within each cycle different phases can be recognized

•These different phases represent different risk situations

• Consider the different phases of the S&P500...

INVESTING IN THE SHARE MARKET - 3 23 JULY 2009

DOW PHASE ANALYSIS ON THE S&P500 WEEKLY

REVIVING CONFIDENCE

INCREASING EARNINGS

RAMPANT SPECULATION UNCERTAINTY

DECREASING EARNINGS

DISTRESS SELLING

LOSING HOPE

Distribution

Accumulation

2(b) Trend lines

Perhaps the simplest form of technical analysis

Markets are not random they often move in trends…


All Ords monthly

Trends can continue for long periods.

All Ordinaries weekly

How to draw trend lines

CHART SHOWING UP TREND

COULD USE A DIAGRAM OR ACUTAL CAHRT


LOW

LOW

LOW

HIGH

HIGH

HIGH

HIGH

THE UPTREND

Trends usually include countertrends

2 (c) Support and Resistance



s

s

s

R

R

LONG TERM S&R

ABS WEEKLY

The trend line as support

3. Problems of randomness of data

• Moving averages


Randomness, volatility and variation often make

chart interpretation difficult.

Consider the following chart...


This stock is not trending

How to deal with volatility and randomness ?

We have considered using trend lines to resolve the problem of

random data.

This is often very useful but there is a better way of coping with

variability.

This is the moving average

So what is a moving average? …


A 10 period moving average (this is an exponential moving average)

Moving averages are lagging indicators and are the basis of many other indicators

Triple moving average Note the lag effect

• Probalby build up the ma idea here The multiple moving average.

LYC weekly

4. Market patterns

Chart patterns reflect human behaviour in a market.

The following chart patterns offer a high probability of future market movement and can be used to select stocks or to time entries into stocks.

(a) Continuation patterns

•The triangle

•The flag

(b) Reversal patterns

•Double tops

•Head and shoulders...


Patterns can be categorized into:

Continuation patterns

or

Reversal patterns

Consider the following chart…



A trend continuation pattern

A trend reversal pattern

4(a) The ascending triangle

An example of a Continuation pattern...


A reliable continuation pattern The ascending triangle

The flag

Another continuation pattern...


The flag

ASX200


The pennant

a variation on the flag.

NAB daily

4 (b) Reversal patterns

(i) Double tops

(ii) Head and shoulders


METHODS FOR STOCK SELECTION AIA CONFERENCE 2009

MINIMUM TARGET

ABS WEEKLY

DOUBLE TOP


IPL WEEKLY

Head and shoulders

Neckline

Target

Target 1140

S&P500 daily

July 19, 2011

Also note the Inverse of these Patterns

In the following examples both patterns indicated the bottom

of the bear market in early 2009

• Double bottoms

• Reverse head and shoulders…


NASDAQ weekly Double bottom

DOW Jones weekly Reverse head and shoulders

Technical analysis and probability

Technical analysis does not provide a forecast, it provides a

probability that a future event may occur.

•Ascending triangle - high probability of trend continuation

•Flag pattern - high probability of trend continuation

•Double top - probability of a trend reversal

•Head and shoulders pattern - very high probability of trend reversal...


Technical analysis and the time frame

Always be aware of the time frame.

•When considering any security, view the longest time frame first.

•Signals in longer time frames are more reliable than signals in

shorter time frames

•So a head and shoulders pattern on a monthly chart is very

significant while this same pattern on a daily chart is significant

only for the shorter term…


Software for technical analysis

Many alternatives (Incredible Charts)

Suitable software can be used for:

•Analysis of any security

•Stocks, indices, foreign exchange, bonds etc

•Understanding market risk

•Managing the open position

•Maintaining a watch list

•Screening the market for specific stocks...


Trading systems

Technical analysis provides the opportunity to develop

trading systems.

The approach of Weinstein is a good example.

He used the 30 period moving average on a weekly chart...


The Weinstein approach using a 30 week eMA

Risks in investing


Investing does entail Risk

For the investor, preservation of capital is essential...


Will all of my Investments be Winners?

• when I buy a stock there is no way of knowing if my analysis is correct,

this stock might be a loser or the market may move against me. (use stops.)

• 70% winners is good and 80% is excellent

• because there will be losing investments there must be risk management

strategies

• must calculate the risk of loss on any investment

• must use stops to avoid significant losses

• but what are the different risk factors and how can these risks be handled ?...


Managing the Risks in Investment

Market risk

• if the market falls, most stocks will fall too - know the position of market

Specific risk

• the risk that the stock you buy, falls in price - diversification - the 2% rule

Liquidity risk

• the market for this stock is too thin - avoid this stock

Financial or credit risk

• risk when an investor borrows money - exercise care if borrowing

• risk if that the company (stock) has high debt - watch debt/equity ratio

Sovereign risk or country risk

• the risk of investing in an unstable economy – avoid this stock

Currency risk

• investing overseas poses risk of currency movement – hedge currency...


Should investors avoid risks or manage them?

Most of the risks can be avoided.

But investors cannot avoid market risk and specific risk

So these risks must be managed

Consider specific risk now - market risk later…


Managing specific risk

Specific risk is the risk that the stock you buy, falls in price

The investor can manage specific risk by:

• Diversifying and investing in a number of stocks - how many?

• Applying the 2% rule.

The 2% rule prevents an investor from losing more than 2% of capital on any one investment. It also states how many shares can be bought.

Consider the following example:

applying the 2% rule to manage specific risk…


CNP weekly chart Shares can be bought at $4.85

The investment plan in this case would stipulate that the investor buy in a breakout during an uptrend.

This should be a profitable investment:

How would we buy shares in Centro Property Trust (CNP)?

We now look to our investment plan…

How many shares can be bought?

• Available capital is $100,000

• Shares of CNP can be bought at $4.85...


The investment plan states that we cannot risk more than

2% of capital on this investment.

We assume for this exercise that the following stock meets all

of the fundamental criteria in our investment plan.

We first step decide how much we are willing to risk losing on

a single share…

calculating number of shares to buy entry price = $4.85 stop loss = $4.10 max risk/share = $0.75 Available capital = $100,000 max risk to capital = $2000 (2% of $100,000) # shares to buy = 2000 / 0.75 = 2666 shares cost of shares = 2666 x $4.85 = $12,933 ....

2% Rule

$4.85

$4.10

Managing specific risk

The investor now buys 2666 shares of CNP at $4.85

• we consider later how this investment should have been

managed

• but we should look at the outcome of this investment...


CNP WEEKLY

BOUGHT AT $4.85

STOP AT $4.10

The investor has 2666 shares bought at $4.85

Stock selection

Stock selection is an important part of the investment process

How do investors select stocks?

It must be seen in the context of the investment plan.

The advantages of stock selection are lost if there is no plan:

• to manage risk

• to manage the trade...


Stock selection procedure

There are many different ways to select stocks.

• We going to use the following approach:

• Firstly stocks are selected using a fundamental filter.

Here using the E*trade software.

• We then subject those stocks to further analysis by

using a technical filter. Here we are using the

Incredible Charts software…


The selection criteria

On fundamentals, each stock must:

•have a debt to equity ratio of less than 25%

•pay a dividend

•be fully franked

•have a ROE greater than 15%

•trade a minimum daily volume (liquidity)....


Using the E*trade fundamental filter

We can progressively filter stocks

The approximately 2100 stocks currently available on the

ASX can be reduced to about 10-20 stocks of special

interest as follows…


NO FILTER (TOTAL STOCKS AVAILABLE) 2060

DEBT TO EQUITY RATIO OF <25% 1290

DIVIDEND IS GREATER THAN 5% 84

ONLY FULLY FRANKED STOCKS 68

RETURN ON EQUITY (ROE) > 15% 32

MARKET CAPITALISATION >$150 MILLION 15

FILTER NUMBER OF STOCKS

USING THE ETRADE FUNDAMENTAL FILTER

These are the 15 stocks from our fundamental filter

Applying the technical filter.

We now apply technical analysis to these 15 stocks.

The software used here is Incredible Charts and we place

our 15 stocks into a watch list on Incredible Charts…


Applying the technical filter

From the investment plan we are only able to buy a stock

which has a closing price higher than the 30w eMA.

Using Incredible Charts we use the 30w eMA as a simple

filter over these 15 stocks.

The filter we apply will leave us with all stocks on our watch

list which have had a closing price above the 30 eMA

over the last 15 days…


The technical filter reduces the 15 stocks to 10

Consideration of the charts eliminates four stocks

Results of the dual selection process

At the time of running this stock selection scan, (early July 2012),

There were six stocks which satisfied both fundamental and technical selection criteria.

At that time these stocks were:

• Data three

• Wotif

• Cash converters

• Fleetwood

• Thorn

• Mortgage choice

Disclaimer: Note that this is an educational exercise carried out using a specific investment plan. This is not a recommendation and these stocks may not be appropriate for investors who have very different investing profiles…


Stock selection exercise


Using a combination of the Exercise 5 Stock

Selection Handout and the charts for the

listed stocks found on pages 29 to 33 of

your workbook:

1.Record the relevant data on the worksheet

(handout)

2.Analyse the information and determine which

5 stocks to add to your portfolio

Buying stocks

Things to consider when buying stocks:

1. Market risk

2. Liquidity

3. Market depth

4. Practical aspects of using a broker…


1. Market risk

It is important to buy when the market is at an appropriate

phase. This information is only available from

technical analysis.

Consider the following charts…



S&P500 weekly

MARKUP

MARKDOWN

These are the very low risk areas in which to buy stocks

This is a very high risk area

ASX200 weekly

Market risk summary

Market risk can be significant. An investor can significantly

improve results by using technical analysis to assess

market risk.

This allows the investor to be aware of stages in the market

which offer an opportunity or pose a risk to capital…


2. Liquidity

An investor who owns shares of a stock which does not

trade very often will have difficultly obtaining a good

price when the shares are sold.

Take the example of CNA…



CNA WEEKLY


CNA DAILY

Liquidity summary

The example using CNA shows the problem of investing in

stocks which are not liquid.

Always evaluate the liquidity from data on traded volumes of

shares or by using charts…


3. Market depth

What is meant by market depth?

Market depth provides an assessment of buyer and seller

demand. It can be important for the investor and

critical for the trader.

When buying stocks it is important to assess the level of

buyer and seller support for the stock.

Consider some examples:…


Practical aspects of using a broker

This section is devoted to looking at the practical

aspects of buying stocks.

• Understanding and selecting a broker

• Using a broker’s platform

• Placing and following an order…


When selecting a broker

There is a need to assess:

• what they charge for their services

• what services they can and will provide

• if you have a need for a full service stock broker

Consider the need for a specialist (full service) broker:

• fixed interest

• options

• futures

• CFDs

• foreign exchange (forex) …


Using an On-line Broker to Buy Shares

This example uses the software of discount broker E*trade

•I want to buy ANZ shares

•My total investment capital is $6,000

•First question is, how many shares can I buy?...



ANZ WEEKLY

Consolidation

In this example I will buy on breakout from consolidation


BUY AT $16.86

STOP LOSS AT $15.67

ANZ daily

I will buy on breakout from consolidation. Assume here that ANZ is breaking out of consolidation and that it can be bought at $16.86.

So how many ANZ shares can I buy?



BUY AT $16.86

STOP LOSS AT $15.67

ANZ daily

• my capital is $6000

• the 2% rule says that the maximum loss I can incur on

any one trade (investment) is 2% of $6,000 = $120

• I plan to buy ANZ shares at $16.86

the buy price is $16.86

the stop loss is $15.67

loss per share is $1.19

• therefore I can buy 120 / 1.19 = 100 shares

• the ANZ shares will cost me $1686....

Buying the shares

Now consider the process of placing the order with the

broker and following the execution of the order using

the E*trade internet broker platform…



100 16.86 ANZ

Factors to consider when placing an order

•Closing prices reflect value (set by the professionals)

•Opening prices can be very volatile (amateurs buy on open)

•A good depth of market screen is an asset ...


Exercise on market risk


Managing an open position


Trade management

Selling is probably the most difficult area of investing.

The aim of managing the trade (or investment) is to

minimise losses while aiming to get maximum profit.

There will always be some losses but these losses must be

kept small compared to the winning investments...


Trade management

How can the investment be managed?

•Technical methods

•Other methods

All aim to protect capital, minimize loss and maximize profit

So what are some of the approaches that could be used ?…


Management – using stops

There are many different types of stops.

In exercises for this section we will use:

Initial stop loss. The risk depends on loss per share. (must preserve capital.)

Profit stop. Sell the whole position if price rises to give 100% profit

Trailing stops. Adjusted periodically to capture profit and limit losses

• Sell of price falls 20% from a previous high

• Moving average stop – using the 30 week eMA.

Other stops include:

Percent loss stops, sell if price falls a fixed % below entry price

Trend change stops, trend line, support and resistance, MMA etc.

Volatility stops. Most useful as they take volatility into account…


Trade management

We go back to the example of CNP and consider how stops

could have been used to advantage to optimise profits...


BUY AT $4.85

STOP AT $4.10

Managing the CNP investment using the work shop trading plan

BUY AT $4.85

STOP AT $4.10

Managing the CNP investment using the work shop trading plan

30 week eMA

20% trailing stop

BUY AT $4.85

STOP AT $4.10

30 week eMA

As a managed investment CNP returned 73% profit.

Using a buy and hold approach, CNP was a very bad investment It is no longer trading !!

Exercises


3 Charts - Bar Replay Exercises

Managing an open position

There are many different types of stops.

In exercises for this section we will use:

Initial stop loss. The risk depends on loss per share. (must preserve capital.)

Profit stop. Sell the whole position if price rises to give 100% profit

Trailing stops. Adjusted periodically to capture profit and limit losses

• Sell of price falls 20% from a previous high

• Moving average stop – using the 30 week eMA.

Other stops include:

Percent loss stops, sell if price falls a fixed % below entry price

Trend change stops, trend line, support and resistance, MMA etc.

Volatility stops. Most useful as they take volatility into account…


Record Keeping

Why is it important?

Personal – monitor performance, borrow funds, estate

planning

Taxation – tax management, declaration of correct

income and capital gains


Requirements

Guidelines Simple to use

Easy to understand

Reliable

ATO Requirements Must be kept for five years from date of Notice of Assessment

Purchase details including cost and brokerage

Sales details including proceeds and brokerage

Dividends received (franked, unfranked, credits)

Expenses incurred (interest on loans, subscriptions)


Skills Development

Investing Diary Record of analysis

Decision making (Buying and selling)

Checklist or process focused approach

Performance Record Wins vs. Losses

Equity Curve

To learn more: Trade Your Way to Financial Freedom (Van Tharp)


Tools

Portfolio Management software (paid/free)

e.g. Broker websites, msn.money, yahoofinance,

Quicken, ShareManager

Simple Spreadsheet

http://www.investors.asn.au/education/portfolio-

management/record-keeping/


http://www.investors.asn.au/education/portfolio-management/record-keeping/





Portfolio Management Spreadsheet


NAME OF INVESTING ENTITY

Current Date 27/06/2012

Code Company Name Purch Date Price Paid # Shrs

Amount

Invested Bkg Total Cost Sell Bkg Stop Comments Div Yield Days Held Curr Price Curr Value $ Return % ROI Asset Sect % Port %P/L of PF

XXX XXX 3/03/11 $0.86 6,000 $5,160.00 $19.95 $5,179.95 $19.95 $0.69 8.14% 482 $0.970 $5,820.00 $620.10 12% A 10 5.57% 0.59%

XXX XXX 17/03/11 $3.26 2,000 $6,520.00 $19.95 $6,539.95 $19.95 $2.99 5.21% 468 $4.200 $8,400.00 $1,840.10 28% A 15 8.04% 1.76%

Total Value of Shareholdings $14,220.00

Trading Account $4,218.50 C 4.04%

Investment Account $86,000.00 C 82.35%

Balance of Trust Holdings This Month $104,438.50 $2,460 100.00%

Total Portfolio Last Month $103,200.00

Increase/Decrease in Value $1,238.50

Percentage Move for the Month 1.20%

Performance Since Inception 1/2/10

Current Balance $104,438.50

Initial Captial $100,000.00

Overall Increase $4,438.50

Return YTD 4.439%

Return YTD with Franking Credits 4.567%

Actual Benchmark Difference

FI Fixed Interest $0.00 0.00% 5.00% -5.00%

C Cash $90,218.50 86.38% 2.00% 84.38%

A Australian Shares $14,220.00 13.62% 73.00% -59.38%

I International Shares $0.00 0.00% 10.00% -10.00%

P Property $0.00 0.00% 10.00% -10.00%

O Other $0.00 0.00% 0.00% 0.00%

$104,438.50 100.00% 100.00%

98000

100000

102000

104000

1 2 3 4 5 6 7 8 9 10

Concluding remarks

We have considered how to manage a stock portfolio.

•With particular reference to:

The investment plan

Risk management

Managing the open position.

We have not considered the problem of investor psychology

which is perhaps the most important area of investing

and trading…


Where do you go from here?

It is our view that to make the most from a portfolio investors need to make use of both fundamental and technical analysis.

This means continuing education in investing.

This would include:

• using an investor forum such as the AIA forum.

• courses on investing eg. AIA investment courses

• accessing Incredible Charts (free) and becoming familiar

with technical analysis


bill dodd and joanne stuhmcke - australian investors assoc · weinstein, stan (1988), secrets of...

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