Portfolio Investment Strategies

Here are some portfolio management strategies to keep in mind when you are building a portfolio of value stocks.

Diversify stocks and industries

Because of the low time commitment, a value investor should be able to comfortably maintain a portfolio of 10 to 15 stocks spread over several industries.

Monitor your portfolio regularly

Like growth stock portfolio, a value stock  portfolio requires a lot of time and attention during the building phase, but less daily stock market monitoring once you are fully invested. The holding period for value stocks is generally lengthy – many months to several years – still it pays to monitor individual stocks on a weekly basis. If a value stock does what we hope it will do, it will move toward a point where it is no longer a value stock. So you should continue to monitor each stock’s key value variables and weed out the ones that are no longer “value” stocks as determined by your system for evaluating value stocks.

We recommend that you review your portfolio as a whole at least once a quarter, after earnings come out. Be alert for large move in the stock price. If a large move takes place in the stock market today – let’s say you bought a stock at $20 and 8 weeks later it is $40 (a nice problem to have) – the stock needs to be reviewed to make sure that it still fits the criteria for a value stock. If the price jump followed the company’s announcement that it expects earnings to exceed current estimates, then the stock could well remain a value stock. Here’s a good rule of thumb: If you would not have bought the stock at its current price compared to its current value characteristics, consider selling it.

Stay fully invested, if possible

Value investors, in general, strive to stay full invested. As a value investor, you’re buying stocks that you believe have a little market risk; so there is not point in maintaining a large cash position. This assumes, of course, that you can find good value candidates. In the spring of 2000, value investors who concentrate on large-cap stocks fund a scarcity of attractively priced value stocks because large caps had become overvalued by the end of the bull market run. That would have been a good reason to increase your cash position – or to switch to small-cap stocks, which were out of favor at the time. Except for such rare times, there is likely to be an abundance of attractively priced value stocks in the major market caps.