Portfolio Process

As a follow up to yesterday's post I wanted to address a comment left at Seeking Alpha on a recent post on country selection and ETFs.

I get really frustrated when I see blended offerings like

I answered by asking why he doesn't use individual stocks to which he replied;

1. Reach - accessing markets like New Zealand, Philippines, etc.2. Bandwidth - I'm a one man shop, how can I effectively analyze stocks across 70 odd countries - covering all sectors and market caps?

It is not crystal clear whether this person works in the industry or not but either way one element of how you construct your portfolio is the time available to research and monitor; this applies to people who work in the industry and do-it-yourselfers. The spectrum here ranges from someone like mark Mobius who probably has an army of analysts so time can be spent weighing the merits of the various Sri Lankan grocery stores (presumes there are publicly traded grocery stores in Sri Lanka) to someone with literally no time/inclination and so would rather hire the task out. None of these are bad or good, they just are.

The reader's first comment makes it seem like he does prefer to make some very narrow decisions but in his second comment acknowledges the limits of his time. I think the reader is missing something, based on the comment thread anyway, which is that he takes the idea of introducing individual stocks to an extreme conclusion of watching 70 markets (not sure where that number comes, maybe it is the actual number of countries with stock markets?) but of course it does not have to be that extreme.

As the comments quoted above reference countries we might be safe in assuming that the reader is comfortable making country decisions...but not 70 markets worth. It does not take a lot of work to rule a country out. As a personal example I have no interest in owning Italy. It is an easily accessible country with the iShares Italy (EWI) and many individual stocks. I've never been a fan of the country but this could change at some point of course. Between reading the Wall Street Journal and FT every day and taking in an hour of CNBC Europe every morning I am at least remotely in touch. That is close enough so that if I hear/read something might cause me to change my mind about Italy I can then devote more time to research into whether I want that country in the portfolio and if I do get to that point, then figuring what I think is the best way in.

The above about Italy also pertains to other European countries we don't own and if you substitute CNBC Asia for CNBC Europe then it pertains to the places in Asia we don't own. General current events and the TV commentary is enough to keep tabs on many places I don't want to own for now and requires minimal effort.

We own about a dozen foreign countries and I keep close tabs (so more effort than described above) on several more countries, maybe another dozen or so, but whatever the number it is nowhere near 70. I think the current events/CNBC description makes for an efficient use of time. For countries I care more about I would layer in Bloomberg, Seeking Alpha and news feeds.

The same can apply to how you stay current on themes. Current events reading can keep you in touch with more time devoted to "important" themes. As an example I have no interest in solar for reasons I've written about many times before but stay remotely in contact with current events (there was an article in this weeks Barron's that was about a five minute read). Compare that to coal (maybe not a theme but close enough) which I follow much more closely, seek out content to read and spent time determining what I think is the best way in for clients.

Where individual stocks are concerned I know Jim Cramer says one hour per week per stock. I have no idea how much time I spend per week on each stock. I do my best to catch any news or commentary on what we hold but obviously I do not find everything published everywhere. I know people spend more time on each stock and some other people spend less time on each stock. There is no right answer and no matter how much study you do you can still get caught off guard with something along the lines of whatever happened to Upjohn in India way back when or what happened to DGW recently (didn't own either one).

Part of getting caught off guard, and it will happen occasionally, is how you react. Recently we had a name drop 5% one day and then another 5% the next day. It is a foreign stock and the news was about possible gains made by competitors. New found success by a competitor is not a deathblow for a company; maybe lottery ticket biotechs are an exception. By virtue of my understanding of the company and the industry (I concede plenty of folks know it far better than I) I was able to buy opportunistically for an account we've been implementing. The stock in question took back the 10% over the next two days and is now higher still.

I believe I follow the names close enough to understand what most things mean but as stated many times before I know I will get some picks wrong for whatever reason. The combination of right and wrong has delivered the type of result I seek over the entire cycle. I am of course describing an aspect of staying on my own mat. You might be reading this site to help define the parameters of your mat (take little bits of process from many places and create your own process).

The above is pretty much how I do things. I start reading about 90 minutes before the open and read through most of the stock market day with half an eye on CNBC in case there is something I need to hear. If there is trading to be done that takes priority over reading but usually can get to the reading later in the day as most of what I need prints early in the day. When I get back from the gym there is a little more reading but probably less than in the morning and this is also when I usually write. The weekends are a lot of reading with sports on.

I offer this up as a compare and contrast and also as a template of sorts. The original reader acknowledges the limits of his time, we all have limits. We can all only get done what we can get done but as mentioned above there are ways to leverage your time efficiently and multitask. One stray item in passing can be the thing that leads you to something important but you won't hit every single positive thing out there. While working smarter might evoke an image of Dogbert and Pointy Haired Boss there is something to it and if the reader above can't leverage his time differently then yeah shouldn't use stocks but maybe you can.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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