Maintain Control of Portfolio

It is so easy to add bits and pieces to a portfolio to where it is out of control.  Several of the portfolios I track are in or getting close to this condition.  What happens is that an investor picks up information on a stock or ETF that appears too good to be true and that investment is added to the portfolio.  Sometimes the addition is in such a small percentage that it will never contribute to the overall performance of the portfolio.  If this is the case, why bother with the investment.  I call these "shard" investments.  Sometimes we end up with shard stocks as a result of spinoffs.  We have no control over these events, but we can control what is in the portfolio if we decide to buy.

How do we avoid the problem of a portfolio loaded up with bits and pieces of various ETFs, mutual funds, stocks, and bonds?  The key is to have an investment plan and stick with that plan.  Use a rule of thumb calculation where there will not be more than 60% more investments in the portfolio than there are asset classes.  As an example, assume the portfolio plan calls for 12 asset classes.  In this case, assume the maximum number of holdings will not exceed 1.6 x 12 or 19 to 20 investments. One might go as high as 25, but that is about the upper limit for a Mosaic style portfolio.

Examine your portfolio to see if it is getting out of control.  With the market as high as it current is, now is a good time to clean house and bring the portfolio back to a manageable set of investments.

Check out this portfolio construction blog entry.

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Bullish Percent Indicators: 12 October 2012

Major Indexes:  The single major change this week is the move out of the overbought zone for the NYSE BPI.  That is the column that somehow was changed to 68.  That should read, NYSE.  Of less importance is the transportation average moving from defense to offense.  Nevertheless, that move is positive.


Sectors:  There were no significant changes in the 10 sectors.  All offensive and defensive positions remain the same.  There was some weakness in a few sectors, but the changes were minor.  The markets were rather flat this past week.