Making of a Portfolio: 101

Oct 20, 2013 2 Comments by

 

I am currently preparing a pilot portfolio based on the American Markets, and today I shall take you through the basic process of making a portfolio,

Well true to my nature, I have first sought to shortlist a few ideas which I can further brainstorm. However I am not comfortable using stock screeners. Thus I have taken upon myself the Herculean task of going through all the listed companies I can get my hands upon.

For starting out, I have categorized my initial evaluations into 4 basic categories so as to give me a rough segregation when I look deeper. They are as follows

1- Diamonds in the rough:

These are really wonderful businesses which are selling cheap. They would generally comprise of companies which would eventually turn into the Next Generation Starbucks or Google. Sometimes they are also classified as “Growth Stocks.”

2- Diamonds Nevertheless:

These businesses are also similar to the previous category. However investing is not only buying the correct business but also at the right price. Whatever these businesses make up in Quality, they lack in Valuation and so I shall wait and watch and buy them whenever an opportunity presents itself, when the price plummets for some temporary moment.

3- Weak Ducks:

These are overpriced ventures, with probable softness in business models and fault lines all across them. One thing about a portfolio is that one should maintain a long as well as short exposure. These weak ducks are what I intend to look through for potential companies, that I can “Short”. However I am not looking for more than 5-10 companies ultimately in this space.

4- Too Difficult to understand.

Although this list does overlap with the latter, this category has been inspired from one of Warren Buffet’s observation of reducing information overload by not focusing on incomprehensible data. These are businesses I cannot claim to understand at all and will most probably never give a second glance to. These generally involve Technology driven companies and at times Biotechnology companies

Having made this list till date I have had probably 4-5 companies make the first category. My goal is to find 15 wonderful companies at a superb price.  I shall be publishing my coverage on them in some while but till then its gruntwork and hopefully I’ll be able to finish the Markets within time.

Stay tuned to know how Aniket picks stocks for his portfolio.

Aniket Parikh is a Materials Science Undergraduate at IIT Kanpur. He is keenly interested in Value Investing and Business Analysis. A Voracious reader, his recent focus has been to develop an active prortfolio for the long run

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2 Responses to “Making of a Portfolio: 101”

  1. Anon says:

    Great post! But I have a question–
    “which would eventually turn into the Next Generation Starbucks or Google”

    Finding growth stocks prior to the market is what, as many including Warren B call “picking a needles from a heysacks”. In growth sectors it is difficult to evaluate which company is going to break away from the other to become a wonderful business. So do we invest in such sectors with a margin of security?
    Thanks in advance!!

  2. 52whadmin says:

    You will have to wait for the next post to know that. :)

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