What is a portfolio? A portfolio is a leather bag, a type of briefcase. No, seriously, that's true. The original meaning of the word is simply a bag designed to carry documents in. It became associated with investments because, in the early twentieth century, stockbrokers would keep each client's share certificates in a separate portfolio. From there, the word gradually came to mean any kind of collection of documents. In finance, it specifically came to mean the investments held by an investor.
That's the broad meaning. The word is used in investing with many slightly different connotations. It could simply mean all the investments you have - your complete asset base. It could mean one specific type of asset class, as in your mutual funds being a fund portfolio and your stocks being your equity portfolio. That's a split by what is in the portfolio. It could also be by a goal, as in your retirement portfolio or your children's education portfolio.
At Value Research, we always recommend goal-based portfolios for mutual funds, simply because we can recommend specific types of funds for any type of goal. However, stocks are a different beast altogether. Since companies are run not for investment goals but according to their own business goals, portfolio construction in stocks is a very different kind of activity. The ultimate goal is obviously the same - for you to be able to meet your life's financial goals. However, the method is more complex because of the nature of the investments.
Let's see how our Value Research Stock Advisor service deals with this. The stocks that are recommended by the Stock Advisor service are NOT a portfolio. We do not make an attempt to include or exclude a particular stock because they fit a pattern. If, at any point, the economic and market circumstances are such that a large number of stocks of a particular type (say, large-cap or mid-cap, or a particular sector, or dividend payers, or any other characteristic) become suitable in every other way, we will definitely consider them for inclusion in our recommendations.
For us, the dominant qualifier will always be the stock itself and not other stocks that might be on the recommended list at the time. When we began the service, our stocks list was relatively undifferentiated. The number of stocks was small compared to today - just 10 - and creating subsections was a little pointless. The focus was entirely on choosing good investments and was likely to stay that way for years to come. However, I say 'relatively undifferentiated' because as our long-time members would recall, we always had the concept of 'All Weather' stocks, even in the beginning. The name is self-explanatory, as is the role such stocks would play in a portfolio. Therefore, even at that time, although that set of 10 stocks was not a portfolio, our members could use the 'All Weather' label as guidance to tune their stock investments depending on their preference.
From that point, almost four years ago (how time flies!), our recommendation list has grown to as many as 46 stocks. However, the set is much more differentiated now and there are actually three subtypes that we classify as such. The three are Best Buys Now, All Weather and Dividend Play. Since I like to keep things simple, the names are quite self-explanatory. Of course, there are nuances about how exactly we interpret these terms but if you go by their obvious, literal meaning you won't be wrong.
However, that is all. Quite deliberately, I have stopped here in terms of Stock Advisor providing you with a ready-made portfolio. Essentially, we have provided you with all the ingredients but not the final dish. They are carefully chosen high-quality ingredients. They're labelled accurately so you know how they taste. However, whether you want a spicy dish or a mild one, a sweet one or a pungent one, that's up to you.
I believe that this is the approach that equity investors want for themselves. Equity investors tend to be (or become) a lot more independent and self-willed than mutual fund investors and it's best to give them everything they need to create a portfolio for themselves but not try and micromanage what they will buy and sell.
Do you agree with our approach?
If you do, head to www.valueresearchstocks.com. You will find a total of 46 recommended stocks, of which 16 are 'Best Buys Now' and 13 are 'All Weather'. Take your pick and cook your dish.