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It’s Time For A Portfolio Review – Here’s What To Look Out For

As a new year begins, investors may also be preparing for new experiences as well as new challenges when it comes to investing.

Those who are active in monitoring their portfolios may decide that it’s time to do an annual review, and this article will help to highlight key areas to check on and look out for within the portfolio.

Companies Which Are Performing Well

The first category of stocks to look at within the portfolio are companies which are doing well business-wise. The review should assess if their competitive moat remains strong, or if moat trends may be negative or positive. Are there continued catalysts for the business which will carry forward into the new year and possibly many years ahead? Finally, it’s important to also do another review of the risks pertaining to the companies, as these may have altered during the year. The purpose of the review is more of a check to determine if the investment thesis remains valid, in order to justify retaining such companies within the portfolio.

Companies Which Are Facing Challenges

The second category of stocks will be uncomfortable to look into – these are the ones which are facing challenges or problems, resulting in the business taking a hit in revenues, profits and cash flows. The investor should go through each company and ask the following:

  • How is management reacting or responding to such challenges? Are they candid or evasive?
  • Is the problem or issue temporary, or likely to be permanent? Why so?
  • Has the industry in which the company operates changed for the worse? If so, is this change structural (i.e. here to stay) or fleeting?
  • If the company has communicated a plan to manage its troubles, how long will a turnaround take? What metrics should the investor monitor along the way?

The investor should assess the above objectively, and if he feels that the company may end up floundering for an extended period, he may consider divesting the position and allocating the money to a more promising investment.

Overall Portfolio Characteristics And Exposure

Finally, the investor should review the portfolio on an overall basis. Is any position a little too large, considering the risk-reward ratio? Is there any over-concentration in particular regions or sectors? What is the overall dividend yield like for the portfolio and is this likely to be sustainable? How much cash is there to enable the investor to take advantage of good opportunities to improve overall portfolio performance?

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.