December 4th, 2009

Rules To Build A Basic Stock Portfolio


Our contributing writer, Tim Parker, is a stock picker who’s built a basic stock portfolio. Here, he explains his stock investing strategy. If you’re interested in The Digerati Life’s take on stock market investing, you can review this post on how to beat the average investor’s returns.

basic stock portfolio
Image from smh.com

Have you noticed what I have noticed? Maybe I’m in the minority but it seems that all the websites, financial news networks, and other financial media are quick to say that they cater to the part time or “retail” investor. In my experience they don’t.

I don’t know about you but I have a full time job outside of the investing world and if I were to sit at my desk and watch the stock tickers all day, I would quickly be unemployed. If I were to spend hours each day researching stock picks and P/E ratios rather than finding ways to increase my value as an employee, I would, again, be quickly unemployed.

While it is true that a good investor is always working hard to learn something new, I’m a teacher and in the world of education, if you aren’t improving your skills, you’re losing relevance in your field. If you have a full time job, you’re probably thinking the same thing.

Turn on the news and what do you see? People talking about Libor, futures markets, commodities, and day trading. How many “retail” investors have time to keep up with that? First, it’s important to remember that us “retail” folks can’t realistically expect to make thousands of dollars per week like the pros can. We don’t have the time nor the money.

Rules To Build A Basic Stock Portfolio

With the right expectations, we can still make money in the stock market but often, our expectations need to change. Here are some rules I follow when I buy stocks:

  • We need to take at least a medium term approach. Hold stocks for a minimum of a year if possible.
  • Buy stocks that have dividends so you’re sure to make money simply by holding a stock.
  • Buy stock in large, solid companies or blue chip companies, so that if you don’t have to time to watch your investment during a given week, you won’t have to worry about these companies going out of business.
  • Or for those who want to get immediate diversification, then mutual funds and index funds may be the much better approach.

My Stock Portfolio and Latest Investment Returns

While average investors should make sure their money is diversified adequately into various asset classes, there may be room in their investment arsenal for an individual stock portfolio. For those who subscribe to this philosophy, I’d like to introduce you to something that I put together using my aforementioned rules. My “No Hassle Stock Portfolio” is a small collection of stocks that uses these rules. Currently, there are only 5 stocks in this particular portfolio. They were all picked when they were undervalued. Some have made a lot of money and some remain undervalued. I did my research on these stocks and thus far, they’ve performed reasonably well (yes, and so has the DJIA ) ). Here are the particulars:

  • GE (General Electric Company) – 200 Shares @ $11.75
  • HD (The Home Depot, Inc.) – 100 Shares @ $22.81
  • BAC (Bank of America Corporation) – 200 Shares @12.89
  • WEN (Wendy’s Arby’s Group Inc.) – 400 Shares @$5.38
  • MRO (Marathon Oil Corporation) – 100 Shares @$33.48

The No Hassle Portfolio is for the retail investor. You don’t have to log onto your online broker to watch these stocks every day. You don’t have to try to make the impossible predictions of day to day market moves, and with dividends being paid on each stock, you are getting paid to hold the stocks. I expect to hold these stocks for 1 to 5 years.

While I recommend a 1 to 5 year holding period, I also personally advocate taking some of the money out of a stock when it runs up in value, then buying it back when it dips. This will be noted as stock market timing — which has its critics — but it’s certainly one approach an experienced investor can take. I don’t sell the whole investment. As an example, if I own 500 shares that have gone up 25%, I would typically sell 200 shares and buy those 200 back when it goes down in value. This is as fancy as I’d get. Other than that, I hold on to the stocks.

The good news is that this portfolio has gained more than 20% in less than two months! Now there’s one other thing I try to do — and that’s to give back. I donate a portion of my profits to charity and I’ve encouraged anyone who follows this portfolio to think about doing the same — perhaps to give at least 10% of their returns to a charity or worthy cause of their choice.

If you’re curious about my portfolio, more details can be found here.



Rules To Build A Basic Stock Portfolio

This entry was posted on Friday, December 4th, 2009 at 2:57 am and is filed under Dubli, Dubli Networking Business, Herbert Brown, Herbert Brown jr, Herbert L Brown Jr, Investment. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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