Review Your Portfolio

Today’s article comes courtesy of frequent contributor Dave Van Knapp. His site,, is chock full of clear-headed ways to pick stocks and explains the oft-unappreciated role of dividends. As a bonus, Dave publishes one of the industry’s simplest timing outlooks. Enjoy!

How to Conduct a Portfolio Review

by Dave Van Knapp

Many investors use the turn of the new year to do “once-a-year” tasks. Reviewing your investment holdings is something you should do once or twice a year. The Portfolio Review is a wide-angle look that pulls the whole picture together. Its purpose is to step back, examine what you have, and identify changes that you want to make. It is a formal bird’s-eye review of investments for performance, balance, and suitability to your goals.

Here are the steps that I follow:

1. Review Your Constitution

Every investor should have a constitution. It states:

  • what your investment goals are,
  • what strategies you use to achieve those goals, and
  • what tactics you use to carry out those strategies.

You may call this your Investment Policy Statement or something similar. It is your highest-level rendering of why you are investing and how you do it. It should be written out. (To see the constitution for the Dividend Portfolio at, click here.)

As you age and learn more about yourself, your goals probably change. For example, maybe your kids have finally graduated from college and you are not saving for that any more. Or you are now just five years from retirement and it is no longer prudent to have 90% of your money in stocks. Ever-shifting market conditions and your increasing knowledge about investing may lead you to new strategies and tactics. The explosion in ETFs from just a couple of years ago may cause you to reconsider what you invest in.

So review and update your investing constitution as the first step in your annual investment review. If you don’t have an investing constitution, create one. First list your overall goals. Then address strategies to achieve them:

  • Your savings rate and methods.
    • Or, if you are harvesting, what your annual drawdown will be and why that rate is appropriate.
  • Risk management: How will you keep losses within your tolerance level?
  • Age-appropriate and goal-appropriate asset allocation.
  • How active (or passive) you intend your investing life to be.
  • Similar “big picture” topics.

This may sound tedious, but most investing constitutions can be written in a page or a little more. The discipline and soul-searching required to create one is invaluable.

If you are in the wealth-accumulation phase of your life, pay attention to your savings rate. Are you saving enough? Be sure to utilize any tax-advantaged opportunities available, and contribute at least enough to your 401(k) to get your employer’s matching contribution.

Also pay particular attention to asset allocation. Many studies conclude that asset allocation is a bigger determinant of a portfolio’s return than what particular securities you buy. One decent way to get a fix on age-appropriate allocations is to look at the those used in target-date mutual funds. For example, compare and contrast Vanguard’s, Fidelity’s, and T. Rowe Price’s offerings aimed at people your age. You should be able to settle on a mix that’s right for you.

In 2008, maybe you “went to cash” as a result of the crash. Is it time to start investing again? If so, what justifies that and how are you going to do it? All at once or gradually? Articulate your plan.

2. Compile What You Hold

Now I am going to concentrate on the stock/ETF portion of your overall asset mix. Make a list of each holding. Keep your list in a text document or spreadsheet, or handwritten. That makes it easy to update each time you make a sale or purchase. If you don’t already have such a list, create one. If you already have one, update it.

There are numerous tools on the Web to help you track portfolios. However, I find that an old-fashioned homemade record serves best. It lets you customize what you keep track of, eliminating unnecessary details and noise. Nothing on the Web is specific to you and your constitution.

At the top of the list, in a general introductory section, I like to state the following:

  • Today’s date and the S&P; 500’s current value
  • The date of the last review, the S&P; 500’s value then, and its percentage change since then
  • The portfolio’s current value, its value last time, and its percentage change

For the list itself, I use a table with one row per holding and the following column headings:

  • Stock (i.e., name and ticker of each stock or ETF held)
  • Date bought
  • Price when bought (adjusted for any splits since then)
  • Price now
  • Commentary
  • Action

3. Commentary

After you populate the first four columns, turn your attention to the Commentary. This is the most important part. In it you should address:

  • Why you bought the stock or ETF. How does it fit your overall strategy? Did you buy it on a hot tip? Admit that here. Hopefully you had an investment thesis for anything you bought. Is your original rationale still sensible?

  • Whether anything has changed about the fundamental outlook of the company or the sector covered by the ETF. Do the basics still seem sound? Would you make the same investment today?

  • How the stock is doing according to any metric(s) you choose. There may be several valid measures. For example, is it outperforming or underperforming the market? Sustained underperformance can be a red flag; maybe the market knows something. If a stock has problems, are they company-specific or general throughout the market? If it is a dividend stock, is the dividend solid and increasing as you hoped? Does it appear to be safe for the future?

  • Whether the purchase appears to have been a mistake, or conversely, whether it is a winner according to your metrics. Perhaps the situation is ambiguous and needs more time to resolve. In any case, characterize the holding’s performance and whether you want to keep it or sell it.
    • If a stock has become unsustainably over-valued, you may want to set a sell-stop under it to lock in your profits if the market starts to pull it back.
    • On the other hand, if the stock is currently undervalued, you may want to buy more.
    • If your decision is to continue to hold the stock or ETF, what justifies that decision?

4. Action

After you complete your commentary, the ultimate action for each holding will be obvious. But how you carry it out may not be so clear. You want to optimize the execution of every buy and sell decision. (Note well: Holding is also a decision, but it requires you to do nothing.) For example, if you have decided to dump a stock, do you want to just sell it, set a trailing sell-stop under its current price to catch any unexpected updrafts, or set a price target that must be reached before you will sell it? If you want to buy more of a stock, do you want to do that at current market price, or only if it falls (or rises) to a particular price? Whatever the case, plan your next move here. This column becomes your to-do list.

Finally, accept that no matter what analytics you apply, you are going to make some mistakes in your investing life
. The real strategic goal is to improve the percentage of correct decisions and maximize their success. The Portfolio Review is an important tool in reaching that goal. It is an essential part of a “Buy and Monitor” approach that all successful investors employ.

To read an interview with Dave, click here.

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