Owning a portfolio with a long tail is a huge challenge most of the time
03-May-2018 •Aarati Krishnan
Most of us know that it isn't a good idea to own scores of stocks and dozens of mutual funds in our portfolio. Successful investors, both in India and abroad (Warren Buffett and Ramdeo Agarwal, to name two), win by owning concentrated portfolios. This allows them to stick only to high-conviction bets and to track the businesses they own in great detail.
For the ordinary, part-time investor, owning a portfolio with a long tail is even more of a challenge. With so many bets to monitor, he may have no time to weed out losers or to nurture winners. This depresses the portfolio return.
Still, many of us end up with cluttered portfolios due to our behavioural traits. There are times when we buy funds or stocks out of sudden impulse. We fail to cut losses on our losers because that would mean admitting to mistakes. We also compound both errors by rushing to book profits on the winners, while hanging onto losers in perpetuity.
From now on forget your buy price for each stock or fund. Honestly answer just one question - if you didn't already own this stock or fund and had to make a decision about buying it today, would you go for it? If the answer is no, just get rid of it. In no time, you will be left with a swacch, manageable portfolio.