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In this series, I build an investment portfolio and manage it through market cycles. This series is for information purposes only without regard to any particular investment objective, financial situation, suitability or means. It is not be construed as a recommendation, or any other type of encouragement to act, invest or divest in a particular manner.
First step: build a basic framework of the portfolio. Here is what I have in mind for this portfolio:
Objective: To build and manage an investment portfolio to beat inflation and an equity index.
Size of the portfolio: US$ 1 Million
Components: Equities and Bonds (Standalone & Funds)
Strategy: Actively managed. Buy, Hold or Sell. Long & Short (to maintain market neutrality). No Leverage. Use of Leveraged funds not to exceed size of portfolio.
Time Horizon: Greater than 5 years
Investment Universe: Developed and Emerging Markets
The equity benchmark that I have considered for this portolio is the
MSCI ACWI Investible Market Index
Region weights on the index: North America 63% (of which US is 60%), EMEA 17%, Emerging Markets 11% and Asia Pacific 9%
While the index does help to consider regions for stock / bond selection, this portfolio will most likely not have a similar regional weight. I intend to keep this aspect flexible.
The next step: build an evaluation framework (how am I going to select the investment?)
Here are some of the matrices that I intend to look at while making selections for this portfolio:
Valuation: Market Cap, Revenues, Cash from Operating Activity, Capex, Interest, Net Income, EBITDA Margin, Dividend
Does the movement in stock prices suit my risk tolerance?
Volatility
Efficiency: Current Ratio, Return on Assets, Return on Common Equity, Inventory
Leverage Risk: Debt to Equity Ratio, Degree of Financial Leverage
Charts: existing trends and momentum
Since the US has the largest regional weight, in the next post I am going to begin assessment of a few stocks.
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