Most people assume I’m a numbers geek. And that would be a logical assumption, since I am, after all, a financial writer. But the truth is, I’m not. Numbers are fine and of, course, quite useful. But I never go out of my way in search of them the way I do for words. Writing and words – those are my first love.
So, when I was first introduced to the concept of long-term, growth investing nearly two decades ago, I immediately recognized not just the value of investing, but the significant impact it would have on my future. No one needed to convince me of the wisdom of taking that fork in the road.
What I dreaded, though, was the commitment to the numbers involved. I envisioned spending hours upon hours on a regular basis – like every week -- in order to properly maintain my portfolio and secure my financial future. Something would have to give, I assumed, and that something was going to be my cherished reading and writing time.
Have Your Cake?
So, here’s the question: Can you have your cake (in my case, my reading/writing time) and eat it, too (successfully manage a long-term growth portfolio)? The short (and quite surprising) answer is: Yes. In fact, I was stunned when long-time investor, educator, and software developer Ellis Traub broke it down for me. “The portfolio management task shouldn’t be an onerous one,” he says.
Not only is it possible -- it will likely require far fewer hours than you imagine (though if you are a numbers geek, you are free, of course, to spend as many hours as you wish!). Before I reveal the magic number, take a guess. How many hours a year on average, do you think, would it take to properly maintain a portfolio of, say, 15 stocks? 50 hours? 100? More?
Ellis says proper portfolio maintenance could require as little as 18 hours a year. That’s not even half of a typical work week. Now that I can handle.
Impostor?
Since my journey as a long-term investor began, I’ve attended many an investors fair, BetterInvesting National Conventions, Computer Group conferences – even Stock Selection Guide classes back in the day, when most of the forms were filled out by hand. While I very much enjoyed what I was learning and found myself intrigued by the process, I was never as gung-ho as, it seemed, the majority of attendees and instructors at any given gathering were.
Many times along the way, I’ve found myself in the midst of such a gathering of investors. Everyone would be buzzing about every aspect of the investing process – or so it seemed. On more than one occasion, I’ve felt like an impostor.
Looks like I wasn’t alone, after all. Top reasons, according to Ellis, why like-minded investors might avoid the portfolio maintenance process?
· It seems like an overwhelming task.
· It’s not as exciting as buying new stocks.
· It’s not pressing unless prices go down.
· They don’t know what to do.
Getting a Plan
Of course, whittling the process down to 18 hours a year for a portfolio of 15 stocks requires a little planning. Though, as Ellis points out, every stock in your portfolio needs attention only four times a year (every quarter), you’ll need to concentrate the majority of your review efforts on each company’s annual data. “Each quarter, you’ll have access to the latest data on each company,” Ellis says. “But the annual data is what you’re really after. It’s fully audited, reliable and complete.”
While proper portfolio maintenance does require setting aside the time you’ll need throughout the year, Ellis notes that once you’ve blocked off those dates, the rest of the time is yours. For starters, you'll need to get out your calendar and:
Determine When the Data will be Available.
By determining each company’s fiscal year, you can figure out what dates the company’s data will be available. Companies must report quarterly data within 45 days of the quarter’s end; for annual data, the SEC gives companies a 90-day window before they must make their financial information available.
“Data is usually available from data providers 10 days to two weeks after it’s received by the SEC,” Ellis says. And though earnings are often reported sooner, companies may revise the data before filing with the SEC.
Two-thirds of companies have fiscal years that end with the calendar year, Ellis points out. “In a portfolio of 15 stocks, that means 10 stocks will have fiscal years ending Dec. 31 – which means you’ll need to do the bulk of your portfolio management work by April 15,” Ellis says.
Of all of the publicly-traded companies:
· 68.3 percent have fiscal years that end Dec. 31;
· 17.5 percent end in March, June or September;
· 5.5 percent (retailers) end in January or February.
Determine Your Strategy.
Proper portfolio management requires that you’re always prepared to employ both Defensive and Offensive strategies – and that you’re able to recognize which strategy you need, and when.
“Defense has nothing to do with a stock’s price or value,” Ellis explains. “It deals with quality issues only, such as a company’s fundamentals and its ability to sustain growth.” The goal of your Defensive strategy, then, is to protect your portfolio from harm or loss. Defense should be scheduled every quarter as companies release their financials.
In contrast, Offense is a judgment call and is more pressing in an upward market. “Offense has nothing to do with the quality of the companies in your portfolio. It assumes that all of your stocks meet the basic requirements as laid out in your Defensive strategy,” he says. “The goal of Offense is to enhance your portfolio’s performance.”
Stay tuned. Part II of this column (coming soon) will outline both Offensive and Defensive portfolio strategies, as well as how the Toolkit software figures in.
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