Individual Equity Portfolio
Once we have made the initial determination of which market size/style we wish to over/under weight and by how much, we then look at the sectors of the market. Looking at every sector from basic materials to technology, we use the S&P 500 Index* weights as our baseline sector weights. We analyze the eight major groups and 94 sub-groups for relative performance. We rank the entire universe by performance over various periods to help us determine which groups are “hot”, and which are not. Historically, we have tried to tilt portfolios AWAY from the hot sectors and toward the weakest sectors as we see deterioration or improvement in each group. This analysis will help us support the trends in the style “tilting” described in how we manage money.
Finally, when a sector looks to be improving relative to peers, we than drill down into each of the sectors and begin looking at the companies. Initially, we are most interested in the largest stocks, as they have the greatest impact on sector performance. They also tend to be market share leaders with strong balance sheets, low debt, strong cash flow and usually hold a competitive advantage in their industry. We will check relative valuation vs. historical norms and vs. the market in general. We will look at the technical picture as well, to see if the stock has characteristics of an improving price picture. What keeps us in stocks as they turn around is the fundamental picture. As long as the company is executing on their plan we will hold onto the stock. If, however, the stock lags the improvement in the group, we will revisit the story and the valuation to make sure all is in place. Generally, a deteriorating technical picture is our first warning for selling a stock in one of the top performing sectors. Other reasons to sell a position would be a turnover in management or a significant change in business direction.
* S&P 500 Index is an unmanaged group of securities. You can not invest directly in any index. You not own any shares of an index.