Keeping your portfolio in shape is undoubtedly challenging, as things evolve rapidly within the investment landscape.
But the task can be more straightforward than some believe, as investors just need to demonstrate some initiative. For those looking to keep their portfolios in shape, let’s look at a few pointers.
Managing Portfolio Beta
Beta is a measure of a stock's systematic risk or volatility in comparison to the overall market. The S&P 500 is often used as the benchmark, with a beta of 1.0 representing the market average.
A beta greater than 1.0 indicates that a stock is more volatile than the market, while a beta less than 1.0 suggests the opposite. Essentially, low-beta stocks provide a higher level of ‘defense,’ whereas high-beta stocks are known for their higher returns, or ‘offense.’
Investors can use beta to help balance out their risk profile, helping during intense volatility spikes. A classic example of a low-beta stock is Coca-Cola KO.
Stay Updated
Regularly reviewing earnings reports is a crucial part of staying informed as an investor. These reports provide a wealth of information, from revenues and expenses to profits. By keeping up with this data, you gain a deeper understanding of the business and can spot any potential ‘red flags.’
In addition, quarterly reports provide deeper insights into a company's strategy and plans. For example, the report may detail new products or services planned to launch or discuss plans for tapping into new markets.
By understanding a company's strategy, investors can evaluate its long-term growth potential with a higher level of ease. Nvidia’s NVDA quarterly releases have been a great example of why investors can’t fall asleep behind the wheel.
Let Winners Run
The "Let Winners Run" and "Cut Losers" strategy is simple: Investors should hold onto stocks that are performing well to benefit from their continued growth and compounding returns while selling underperforming stocks to prevent further downside.
Of course, selling losers also frees up capital for better opportunities. The approach helps provide a portfolio that grows steadily over time by leveraging the strengths of successful stocks while minimizing the impact of the ‘bad apples.’
Bottom Line
Keeping a portfolio in shape can be challenging, but it’s certainly not as difficult when implementing some guard rails.
Managing volatility, staying up to date, and letting winners run are all a recipe for portfolio success.
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