Equally important to the selection process in achieving a superior rate of return, is the actually portfolio management process or maintenance which is undertaken concurrently. In this regard, we employ three essential guidelines:
1. No Over-diversification
There are a countless number of “discretionary management” portfolios available to the general public - many of which contain more than 100 positions at any given time. Conversely, this portfolio limits the positions to no greater than 25 from quarter to quarter for two primary reasons.
First, and most importantly, a portfolio can attain over 80% of the risk-reducing benefits of diversification with 12-18 well selected securities. We believe it is advantageous to hold a relatively small number of positions that exhibit a greater probability of success, than a large collection of overall average positions.
Second, and certainly more straightforward, it is much easier to maintain a solid awareness of each individual position held within the portfolio and its corresponding price action.
2. No Over-concentration
Along the same guidelines, the portfolio will not have more than 30% allocation into any one specific industry group within the market from quarter to quarter. This reduces the risk of the portfolio being exposed to any one sector of the market coming under pressure at any given time.
3. Execution
By incorporating technical analysis into the execution process, the management of the portfolio is consistent, repeatable, decisive and unemotional when making buy or sell decisions on pre-selected equities.