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