Tags
art vs. science, asset allocation, correlation, debt, diversification, growth vs. value, home bias, illiquidity, stock picking, stock selection, stock valuation, volatility
Well, it’s not ideal publishing another post in this series two months+ after my last post…but I’m obviously no post a day pleaser. And life, Xmas, stocks & markets, and sneaking off to the movies, all tend to get in the way! 😉 A quick (re-)read of Parts I & II might be in order, if you’re so inclined? But to recap, very briefly: In Part I, I stressed stock picking is really two distinct & independent activities:
a) Stock Valuation, and
b) Stock Selection
And all too often, investors confuse & conflate the two…
But presuming your quantitative stock valuation process is nailed down, then stock selection is obviously a far more qualitative process…it’s certainly not about ranking & selecting stocks purely in terms of their upside potential. Fortunately, there’s plenty of stock selection filters you can employ – for example, to help protect against the risks posed by home bias, bottom-up stock picking, and/or a concentrated portfolio. Of course, the overall objective here is to:
i) Ensure stock selection is as much science, as it is art, and
ii) Always strive for greater diversification & superior risk/reward in your portfolio.
Here are some other filters you may find particularly useful. No doubt, as you read, they’ll strike you as perfectly obvious…the trouble is, applying them consistently is easily forgotten when you’re considering individual stock holdings & potential buys, let alone when you’re trying to manage the overall risk/reward of your entire portfolio: Continue reading
