XI. Performance Evaluation

Introduction to Fundamental Stock Research

Once you have a portfolio of stocks, you want to monitor how they perform as a group as well as how they perform individually, especially in the context of the goals you set out for the portfolio. This chapter covers the basics of what to look for when evaluating your investments, including how it can be accomplished in Stock Rover.

When to Evaluate

You can take the temperature of your portfolio on a regular basis in just a matter of minutes. Since you’ve spent the time up front to determine which stocks you want to buy and why, you don’t need to regularly perform in-depth research on those companies; just be on the lookout for any trends or changes, in the marketplace or within the company itself that could change your thesis. News about management changes, lawsuits, or economic trends that could affect your stock should pique your attention.

Companies release quarterly earnings statements and guidance—this is often a good time to review your picks in more detail.

What to Evaluate

The point of portfolio evaluation is to determine if everything is running smoothly, or if you need to make any adjustments, like selling an underperformer, cashing in on a stock that could be coming to the end of a great run, or tweaking the allocation if the portfolio has gotten out of balance.

Here are a few questions to ask yourself with each portfolio check-in:

  1. As a group, how much have my investments increased or decreased in value?
  2. How does this compare against a benchmark such as the S&P 500 (or a proxy index fund like VFINX)? By how much has it outperformed or underperformed the benchmark?
  3. Which holdings have had the greatest effect on overall performance? Is each stock performing better or worse than I expected? Have the fundamentals changed or are macro industry or market issues affecting stock prices?
  4. Is the allocation of the portfolio still in line with my goals?

Remember that the performance will look different depending on the period you’re reviewing. It’s a good idea to check the portfolio over different lengths of time for a clearer perspective on performance.

How to Evaluate

You can use performance and allocation charts, benchmarking, and return metrics to help you answer the above questions. Here are a few key metrics to look for:

  • Gain ($) is a very quick way to see how much an investment (or a whole portfolio) has appreciated. It’s calculated as the current value of the holding minus the basis. Gain % is the same, just calculated as a percentage of the original investment. These metrics are included in the “Portfolio Performance” Table view. For a list of other basic portfolio data points, go here.
  • If you have added money, or made several trades, you can use the period rate of return, also known as the internal rate of return (IRR). This tells you your rate of return over the given period, accounting for inflows and holding periods. Note this is a Premium metric in Stock Rover, found in the Portfolio Analysis window. For more detail on this and other advanced portfolio metrics, see this glossary.

To see sector/industry allocation in Stock Rover, find the portfolio allocation pie chart in the Insight panel, or use the Table’s grouping feature. Premium members can also use the Portfolio Rebalancing tool.

Using Benchmarks

As mentioned early in this guide, relative performance is just as important as absolute performance. Much of portfolio performance can be attributable to sector or market movements, because when the market or a sector is going up, so are its stocks, and vice versa. The S&P 500 is a common proxy for the market, so looking at your portfolio’s performance relative to the S&P 500 will give you insight into the quality of your stock picking (at least for that period). You can also compare individual holdings to their respective industries and sectors.

In Stock Rover, you can explore relative performance easily in the Chart. Premium members can also use the Portfolio Analysis window to see a risk-adjusted calculation versus the S&P 500. If you match the market in performance but with lower volatility (less risk), then you are in a sense outperforming the market.

Additional Thoughts

When evaluating your holdings, it might be useful to keep in mind the “Rule of 5,” which states that, of 5 investments, one will beat your expectations, three will perform about as you expect, and one will do worse than you expected. That is to say, don’t expect every pick to be a winner. The purpose of evaluating is to stay in touch with your investments, learn about your strategy, and refine your portfolio over time. The more rational and honest you can be about your portfolio’s performance, the more you’ll be able to understand your own strengths and weaknesses so that you can make better decisions in the future.

At this stage, you might still be unsure of how to read the information you gather when evaluating your portfolio. That is okay! Just by checking in with your investments on a regular basis, you’re avoiding complacency and setting yourself up for success. With practice, you will develop the skills to be able to make sound, educated judgments about your portfolio.


Practice portfolio evaluation with your real portfolio or a sample portfolio in Stock Rover. This appendix will help you find everything you need.

  1. Chart the performance of a portfolio against a benchmark such as the S&P 500. How do they compare over the last month, 3 months, and year?
  2. Compare each of your holdings to their sector and industry over a 3 month period. Here’s how: open the portfolio so that you see all of its holdings in the Table. In the Chart, add the two dependent benchmarks (from the Benchmarks menu). Make sure the Chart and Table are linked, and then scroll through the performance of each holdings using arrow keys. Each time the chart will update with the performance of the stock versus its industry and sector. Setting the stock as a baseline will make the comparison even clearer. Which holdings perform best against their benchmarks?
  3. Look at the portfolio allocation. Is the portfolio well diversified?
  4. Open the Portfolio Performance view in the Table. Which holdings have the best and worst gains by percentage?
  5. Explore the Portfolio Analysis window to discover your appreciation, IRR, and risk-adjusted return. Portfolio Analysis is a Premium feature, but if you do not have a Premium subscription, you can activate a 14-day trial in order to try this feature for free (go here for more information).
  6. Based on these exercises, do you feel that you need to make any changes to your portfolio in the near future? Why or why not?

Next: Wrap Up

This guide was created in partnership with bivio, which provides online investment club accounting and hedge fund management services.