Managing a stock portfolio entails performing regular tasks such as portfolio rebalancing and correlation. Planning future income and performing tax-loss harvesting to minimize the tax burden is also important.
A final advanced portfolio management task is to test future portfolio performance using Monte Carlo simulations.We independently research and recommend the best products. We also work with partners to negotiate discounts for you and may earn a small fee through our links.
How to Manage a Stock Portfolio in 7 Steps
This article will show you the important steps to managing a winning portfolio. To demonstrate how to manage a portfolio, I will be using a leading stock screening and portfolio management service called Stock Rover because it is the best tool for these tasks.
1. Perform Ongoing Stock Research
Having built your stock portfolio, you need to ensure you regularly review the performance of the companies you own to ensure they still meet your selection criteria. For a value stock portfolio, the criteria might include a margin of safety above 30%; for a growth stock portfolio, the criteria might be an annual earnings growth of more than 20%. You may also want to read the highlights of the quarterly earnings report to ensure you still have confidence in your stock selection.
The team at Stock Rover makes this job much easier by providing on-demand, real-time research reports on all US-listed stocks. With stock Rover Research Reports, you do not need to wait until the company’s annual earnings reports; they are always up-to-date.
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The Stock Rover research report creates something very new, a human-readable real-time research report highlighting a company’s competitive position, market position, and historical and potential dividend and value returns. The image above shows the dividend-adjusted commentary on Microsoft, a company I invested in because I found its excellent potential using my Buffett Stock Screener.
To help you effectively analyze company reports and financials, here is a list of tools specializing in stock research.
2. Analyse Portfolio Performance
A key task when managing your portfolio is to ensure it maintains solid performance in line with your expectations and preferably ahead of current market performance.
But what is good portfolio performance, 5%, 8%, or 10% growth per year? The answer is that any portfolio matching or exceeding the performance of the S&P500 (or a comparable country broad market index) in any given year is deemed a high-performing portfolio.
If the S&P500 grows by 20% in a year, your portfolio should also have at least 20% growth. If not, you can invest in an S&P500 index-tracking ETF and save yourself the time and effort of actively managing your portfolio. You will need something that most discount brokers do not provide, detailed portfolio analytics.
The image below details the reporting and analytics available in Stock Rover. You can see the percentage of your portfolio in each sector and industry and the dollar amount of the investment.
In this example, I used the Berkshire Hathaway Watchlist available in Stock Rover to perform a portfolio analysis of the company’s assets. Here we can see that Buffett and Berkshire are highly invested in technology and financial services. I guess Warren Buffett & Charlie Munger are not focused on diversification as most people believe but on concentration.
If your portfolio is not meeting your expectations, you will need to investigate stock holding to identify what is causing the underperformance.
3. Rebalancing Your Portfolio
Rebalancing the weighting of stocks in your portfolio is a regular task that can be revisited quarterly or annually.
The fact is that some stocks grow faster than others, meaning that they will consume a larger percentage of your overall investment than was typically wanted at the inception of the portfolio.
For example, if you want to maintain a 5% per stock weighting in your portfolio and a single stock (Microsoft Corp, for example) has grown to consume 10% of the portfolio. You might want to rebalance by selling a portion of Microsoft shares and purchasing other stocks.
Stock Rover has portfolio rebalancing built-in. It can connect to your brokerage account, perform a detailed portfolio analysis, and suggest which stocks you need to buy and sell based on your weighting and rebalancing criteria.
Here I have run a portfolio rebalancing report in Stock Rover, which enables me to see what actions I need to take to maintain a balance of 5% per stock. It informs me of how many stocks I need to buy and sell for each asset owned.
4. Execute Portfolio Correlation Analysis
Analyzing portfolio correlation is a key task that professional portfolio managers perform. Modern Portfolio Theory is a well-established concept that proves a portfolio with uncorrelated assets can produce outsize stable returns and lower risk.
Portfolio correlation is an interesting concept that many portfolio managers like to discuss at length. Essentially a correlation analysis compares every stock against each other to assess how correlated they are.
If you follow a strictly diversified portfolio concept, you may want to have loosely correlated stocks. Loose correlation means that two stocks move independently of each other. Tight correlation means the move mostly in a synchronized pattern.
Using Stock Rover, I ran a correlation report for one of my portfolios. In the screenshot below, the red cells represent a higher correlation. A correlation of 1.0 means two assets move in perfect synchrony.
The key rule of thumb for portfolio correlation is that you achieve the goal of loose correlation when the majority of your portfolio has a correlation of less than 0.7.
With Stock Rover, I now perform a correlation analysis on my Liberated Stock Trader Beat the Market System and filter the report to show only correlations above 0.7. The screenshot below shows the results of the analysis.
I work with Stock Rover and enable my Beat the Market system for their Premium Plus subscribers. A VP of Stock Rover contacted me to tell me that he was impressed that the system beats the market because the portfolio has such a low correlation.
5. Plan For Future Portfolio Income
When managing your portfolio, especially an income portfolio reliant on dividend payments, you will want to predict exactly when and how much you will earn in dividends. These reports enable you to plan for future income to support your life or plan for reinvesting those dividends.
The future income tool in Stock Rover allows you to project and predict your expected dividend payments, enabling you to look at actual predicted income to assess if it meets your expectations. If you build an income portfolio and the expected dividend earnings are only 1%, this is a poor portfolio.
I have developed numerous strategies for building high-performing dividend portfolios using Stock Rover, including:
- 6 Steps to Build Your Dividend Stock Screener & Strategy
- How to Find High Dividend Yield Stocks [3 Strategies]
- Dividend Growth Stock Screener: 5 Step Timeless Strategy
- How to Calculate Stock Dividend Yield With Easy Examples
Developing a good dividend portfolio requires robust future income reporting.
6. Do Yearly Tax Loss Harvesting
Tax-loss harvesting is an essential task that good portfolio managers perform before year-end to minimize taxation on a portfolio’s profits. The strategy entails selling any losing assets to offset the loss against the profits of the winning assets.
Tax-loss harvesting can cut your tax bill because the Internal Revenue Service (IRS) lets Americans deduct investment losses from their tax bills. Many investors use tax-loss harvesting to cut the income they have to report to the IRS.
If a stock’s price doubles in value, the investor could sell that stock to reduce the value of his portfolio. You will need to be careful with tax harvesting because the IRS does not allow wash sales.
In a wash sale, an investor sells an expensive investment and buys a similar but cheaper stock to limit a portfolio’s value. The IRS usually considers a transaction a wash sale – if you buy another stock within 30 days of the sale.
You will need to keep good records of every transaction if you tax loss harvest. The IRS can ask you for those records at any time.
Tax-loss harvesting can be complex. Only investors who could face a high income-tax bill should consider tax-loss harvesting. For most investors, the risks of tax-loss harvesting will exceed the benefits.
Most tax experts consider tax-loss harvesting a waste of time for those in low tax brackets. Unless you have over $50,000 in stocks, tax-loss harvesting will probably be a waste of time for you.
7. Plan for the Future with Monte Carlo Simulations
An advanced task in managing a portfolio is to attempt to understand the future performance of your investment. To do this, we can use Monte Carlo simulations. Monte Carlo simulations are used in quantum physics and even engineering to predict the probabilities of patterns.
Stock markets are inherently unpredictable, so Monte Carlo analysis is an ideal solution. Monte Carlo simulations use a stock’s price movement history to randomly assign past performance to future performance to make an estimated outcome.
When this random algorithm is applied to a portfolio over thousands of iterations, you get a good idea of how your portfolio will perform.
The screenshot below shows a Monte Carlo simulation I ran on the LST Beat the Market Strategy.
In this simulation, I ran a sample of the last five years’ historical performance, including the black swan event of the Covid Crash, to see how well my portfolio might perform in the future. The results are in the screenshot below.
Monte Carlo Simulations: Portfolio Management & Forecasting With Stock Rover
How to Manage a Stock Portfolio Summary
The seven key tasks of managing a stock portfolio are research, performance analysis, rebalancing, correlation analysis, planning future income, tax-loss harvesting, and future performance analysis.
Managing a stock portfolio professionally requires a solution that is accurate, saves time, and maximizes your future profit opportunities. Stock Rover is my tool of choice to improve my chances of market outperformance.
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