Top 4 reasons you must use Portfolio Optimizer
HDFC SEC, Tester
We often visit a clinic or hospital to get our health assessed. How many times have you assessed the health of your portfolio? Does it have high Cholesterol (sector exposure)? Does it have high BP (allocation to small and micro caps)? Do you have excess fat in your portfolio (number of stocks)? Have you ever done the stress test on your portfolio to find out what could be the maximum losses you can run into? Most probably, your answers to all of these questions may be no.
We usually have a casual approach towards the wealth that we wish to create for self and our family members. We don't give enough attention. Our portfolio underperforms vs. the market, and yet we are okay with that. I don't blame you for this as you are busy with other urgent matters that do not leave enough time for you to track your portfolio’s performance. Sometimes even if you have time, you may not have the right tools to evaluate the same.
That's where a portfolio optimizer tool comes handy. It not only highlights problem areas but also gives solutions to make your portfolio better.
What will a portfolio optimizer tool do for you?
I am outlining four super features of the optimizer. There many several features of this tool but space constraint will not allow me to go in detail.
- Trim and Fit
We all have a habit of accumulating stocks in the portfolio. It's not by design but due to our sluggish approach. Due to that, we may even have more than 50 companies in the portfolio. Can you track what's happening with each company in terms of news, global impact, regulatory impact, management impact, and so on? The answer may be no, as you have limited bandwidth to track the same. This excess fat (number of companies) harms your portfolio’s health. By keeping this excess fat, you are not creating liquidity to invest in better quality companies. Tailstock performance on either side is not going to move the needle of the portfolio. Worst is that few will do well, and the majority will not. If so, why keep tail stocks? Our portfolio optimizer tool will help you identify stocks that are not going to add any value to the portfolio. By doing this, you will make your portfolio ready for future upside. - Sector Exposure
We all love chasing the hot sector. We keep accumulating a greater number of shares from that sector in the hope of making significant returns. When going is good, everything looks fine. But when the hot industry becomes cold, you stare at huge losses. How many times have you exited the sector at the top of the cycle? Did you sell Infra companies in 2007-08? Did you sell Pharma companies in 2016? The answer most probably would be NO. The optimizer tool will help you to trim position from the sector by asking to move out from weak quality companies in that sector. This will ensure that when the sector turns cold, you are not left high and dry. - Single or Few Stocks Exposure
Single or few stocks dominating portfolio is another weak point many portfolios will have. This kind of skewed portfolio poses two challenges. First, a few stocks movement will decide the fate of your portfolio, which we believe is too risky a proposition. Second, many times few stocks may be commanding higher weightage due to price gain. If so, all the more reason that you take some money off the table. The optimizer tool will help you to book partial profits. To keep booking profits at regular intervals is a good strategy. - Comprehensive Evaluation
Any health check-up would call for a comprehensive assessment, and the portfolio optimizer tool will do exactly the same. It will look at what kind of returns your portfolio generated over the period and whether that returns are good or not. It will also assess the risk you took to generate that returns and was that risk worth it. A comprehensive evaluation will also look at who are winners and laggards for you. Whether your mid and small caps strategy is making money for you or not? Your portfolio would be analyzed to make you understand what percentage of your portfolio is in good quality companies. Whether the companies that you are holding are in a very expensive zone or not? If yes, they may not generate alpha for you. It will ask you to trim your position. It will also help you understand how companies that you are holding performed in recent quarterly results. If need be you would be asked to remove companies that are performing poorly. And last but not the least, it will also help you know whether stocks you are holding are likely to move up or down based on technical parameters. After doing this, it will suggest an action plan with clear cut guidance on what you should be selling, where you need to book profits, and what new stocks you should be adding to your portfolio based on your risk profile.
Usually, this kind of feature is not available to retail investors. Due to that, they lack in terms of optimizing their portfolio. I strongly urge that all investors should use this feature and optimize their portfolio. Once you do so, you will realize your mistakes that you were making earlier. The best thing is that running the optimizer tool is just a five-minute exercise. Please spare five minutes and enjoy this impeccable feature.
Sunil Damania
Chief Investment Officer
MarketsMojo
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