Portfolio Building

POSTED BY rajan.panchal24 ON May 28, 2012 9:10 pm COMMENTS (20)

Hi,
I have come across many people who don’t give much effort and time in building a good portfolio but they try to copy their friends and relatives or others. I was wondering is there any golden rule to build a protfolio which can give you good retruns. On one of the site, I read that one can adjust the risk and return part and can obtain good returns. Well, I read the article but could not understand it fully. I am posting the link here so that you people can read and provide me the zest.

http://www.tflguide.com/2011/06/secret-of-achieving-high-returns.html

20 replies on this article “Portfolio Building”

  1. Jig says:

    Hurrayyyy,
    I have ordered the same book too. Hope i will get more info on investing in intelligent way. 🙂

    Regards
    Jig

  2. rajan.panchal24@gmail.com says:

    Thanks all for the valuable knowledge…

  3. rajan.panchal24@gmail.com says:

    Can you please name those books again here or provide me the links where you posted..
    I do have the “Intelligent Investor” book with me.. but never gave time to read it.

    Many Thanks,

    1. Kapil says:

      You can have a look at the ValueResearch monthly magazine titled “Mutual Fund Insiight”. You can buy couple of editions and then take a decision on the subscription. It costs Rs.100/- each. However, this magazine is not for basic understanding of investment. It’s for intermediate/advanced investors who have basic knowledge and starting/planning to build a portfolio.

      1. Ramesh says:

        Can you tell us, what good points are there in this monthly magazine?
        So that others can think about it.

        Thanks,
        Ramesh

        1. Kapil says:

          Let me tell you few things from the current issue of Mutual Fund Insight:

          1. Staying Afloat – Cover story, which talks about taking advantage of current market scenario rather than moving out of it after booking losses. It is a very well written article with figures that talks about the bear phases of the market and reasons to stay invested.

          2. Interview by Chandresh Nigam, Head – Investments, Axis AMC – who talks about building portfolio, risk management, business hunt, understanding P/E, identifying sectors for investment etc

          3. There is section called Category Watch – which talks about balanced funds and have talked about top five balanced funds (equity oriented) in detail. It has also shown that how some balanced funds have given more returns than equity funds in a long term (15 + yrs).

          4. Book Review – “The House by Bogle Built” by Lewis Braham

          5. Quick chat by Navin Suri, MD & CEO, ING Investment Mgmt

          6. Ask Larissa section – in which this month she talks about what should be done when your fund manager leaves.

          7. Portfolio Makeover – section where ppl ask questions rgdng their portfolio and VRO provides suggestions and modified protfolio (I assume after taking pre-requisite info to do that and analysing risk etc)

          1. Kapil says:

            I had also bought Mutual Fund Yearbook 2012 from VRO but would NOT recommend it.

          2. Ramesh says:

            Thanks for posting this info.

            It seems all this stuff is way too advanced (than most folks will require). 🙂

            Ramesh

    2. Ramesh says:

      It IS a must-read. Start with that.
      Actually, you will not Really need any other book. 🙂

      Once you complete it, you can ask me about more.

    3. Dear Rajan, please check the below link & order some of the books listed in the link –

      http://www.subramoney.com/2011/06/investing-books-the-must-read-types/

      Thanks

      Ashal

  4. rajan.panchal24@gmail.com says:

    Thanks Ramesh for this wonderful explanation..

    Well you asked some questions in between ur reply..I would like to answer some:

    Have you understood things about finance and investing?
    A: I can’t say I have understood every bit of finances & investing.. all i am doing is following the various blogs on personal finance over internet..not sure if I am on right track or not..
    You may advice if some correction is required or suggest some resources.

    after some years, you will again come across articles (paper and online) that in last 8 years (or 5 years) the returns of FD have been better than equities. What are you going to do then? Put your money in FD then?
    A: definitely, not. I do understand that there can be times when things are well and there can be times when things are not well. As I am aware, at sometime sensex reached 21000 while at other time it was 8000.

    1. Ramesh says:

      You have made a start, now please do not stop.
      1. There are other forums, blogs which you can see.
      2. Books. Some lists have been mentioned in this forum also. Very much required because they give a more holistic view than a forum.
      3. Unless you have an independent thinking and analysis, parrotting others’ views will confuse you. A written portfolio statement, with explanations of why this and why that not, goes a long way.
      4. Again, do not take a view just because someone (Ashal, Manish, Nandish, Subra, etc) has said it. =play the ball on its merits not on the basis of the bowler!

      There’s nothing to prevent sensex going to 2k or 80k.

      🙂

  5. rajan.panchal24@gmail.com says:

    Thanks Ramesh…

    I have read at several places who claimed that in the long run equities give exceptional/excellent returns as compared to other instruments with supported proofs from past years.. but in your reply you spoke of wiping out of capital even after years of investment.. Is is really possible and if yes then in what case?

    I am following the start early rule.My age is 24 and I have started investment in equities. i am looking forward to invest for atleast 15-20 years.. but I am not sure when and how I should rebalance my porfolio over the period of time.

    1. Ramesh says:

      Dear Rajan,
      I will make a proper explanation to you, give me time.

      Ramesh

    2. Ramesh says:

      Please do not get confused.
      There are no Fixed Rules in a dynamically changing world. There are principles and some thumb rules (which you have to adjust according to your circumstances).

      1. Yes, in the long run equities CAN give above-inflation returns but will they do it in a particular time period, no one can say. There have been periods of 20-25 years, in which equities were not able to provide good returns, and there have been periods which have provided once-in-a-lifetime returns. You should remember the term ‘lost decade in terms of US markets’ and ‘2 lost decades in terms of Japanese markets’. Can they occur in India, yes they can. Will they occur, no one can say. Do you have the stomach to overcome those?
      Have you understood things about finance and investing? Please take time to learn and understand them. Unless you do so, after some years, you will again come across articles (paper and online) that in last 8 years (or 5 years) the returns of FD have been better than equities. What are you going to do then? Put your money in FD then?

      2. Herd mentality tends not to give superior returns. In days of 2006-7, there was such a feeling. Everybody was interested in putting money in the markets, the mood in the financial entertainment channels was extremely optimistic, etc, etc. If you put money in an asset class during those times, be sure you will not get the superior returns. Historically that has been proven more times correct than not. Cut to late 2007, early 2008, there were programs of Is this the end of stock markets? What will happen now? Can we go to level of 5,000 sensex, etc. Nobody was putting money in the markets (except for few, of course), but the next 1-2 years gave amazing returns. Same happens with other asset classes (read gold, real-estate, etc).

      Realize that equity products tend to give you good returns, only if you are able to go against the herd and remain consistent with your beliefs. Only and only when you put money during downturns (whether small bear-hiccups or long bear markets), you will be able to generate money in the longer term. Bear markets are good for you when you are in accumulation phase (since you are young). Keeping things simple by opting for SIP during all phases is a pretty good way.

      3. I read an example from one of the books (by William Bernstein). A lady invested $10,000 in 1973-74 and did not do anything. After the Black Monday in 1987 (http://en.wikipedia.org/wiki/Black_Monday_(1987)), she asked her MF advisor about the amount of money left. She got the reply, Madam you now ONLY have $178,000 (give or take a few $). Now, it is for you to decide whether that is good or bad (Also calculate how much was her MF value prior to Monday).

      The point to remember is that you need to evaluate the performance of your whole portfolio (including all assets, stocks+debt+FD+cash, etc) and see if that is working for you or not. If your goals are near, then you should shift your assets from riskier assets to lower risk assets and vice versa.

      Learn and Invest. And keep learning.
      Ramesh

      1. Dear Rajan, please give importance to the last line of dear Ramesh’s reply –

        “Learn and Invest. And keep learning.”

        Thanks

        Ashal

  6. Ramesh says:

    Yes, you are correct- you cannot pinpoint a specific amount (even a range) for capital markets.

    Hence, your original query of ‘making a good portfolio’, golden rule, etc are paper-tigers.

    The most important thing in making a good portfolio is YOU and your STOMACH.
    Learn things up, decide what is ok for you: If after putting money in capital markets, you have the stomach to lose it by a significant percentage (50% or more), and you are not scared about running away, do make your portfolio filled with a large percent of equity-related products. Otherwise, get someone else to make decisions for you.

    Markets have NEVER, and will NEVER give you straight line great returns. Only on an average, they are LIKELY to give above inflation returns. Nothing is certain.

    So, set your debt portion to an amount which you feel that you cannot lose, and put rest into equities with FULL knowledge that it can get wiped out in next 1 year/ 3 years/ 7 years or even 15 years. Periodically, you set these things according to your needs (=Rebalancing).

    Ramesh

  7. rajan.panchal24@gmail.com says:

    But how can i decide the rate of return in prior since in market linked investment instruments the rate of return is not fixed.. ?

  8. Dear Rajan, You w’d have to decide your own good return level. Regarding the portfolio building, there can’t be a fix rule. Each of us has our own set of requirements & accordingly the portfolio ‘ll be different for each of us.

    For example – the average inflation rate is 7% & you are comfortable @ 9% earning, in this case, your money should be allocated to different asset classes in such a way that the final return on your portfolio is 9% or more.

    That’s the basic point, as discussed in that article link shared by you.

    Thanks

    Ashal

  9. Jig says:

    As u have asked thumb rule, i would say (100-your age) keep in equity. In detail its depend on ur risk apetite.

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