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A 5-minute guide to become your own portfolio manager
And all you’ve ever wanted to know about share allocation
Recently I’ve been bombarded by readers asking me how many shares to hold in their portfolios.The other day Franklin asked me,“Should I apportion more money on certain shares in the portfolio or is it a good strategy to spend the same money on each?”
Now there’s no right or wrong answer because all of us have different sized portfolios and risk appetites. However, there are some general guidelines you can use which will definitely give your portfolio some oomph! And today, I’ll share them with you…
The 4 guidelines to setting up your own PowA!Portfolio
1. Keep your portfolio small and nimble, not big and slow like the Titanic
The Titanic was a huge ship that had everything in it from lower class compartments to suites for kings. That’s all well when you’ve got smooth sailing ahead, but when it had to quickly change direction to avert disaster it was annihilated…
Your portfolio is like that. Keep it small and nimble and you’ll be safer in rough seas!
I like to have between 6 and 10 shares in my personal portfolio at any one time.That way I can allocate more cash to each shareand maximise my profits.
2. Take the right-sized bites out of the companies I tip
I give risk levels with all the shares I tip. Now you should definitely try to expose yourself to all of the different shares, but limit your holding size for different risk levels. This way you won’t miss any of the gains my PowA! strategy identifies.
If you have R100,000 in your portfolio and you decide you want to have between six and ten shares in your portfolio, your position sizing should look something like this: R15,000 for a low risk share, R10,000 for a medium risk share and R5,000 for a high-risk share.
3. Keep the costs low
Remember to check your broker’s giving you the best deal he can. If you do more than 10 trades a month, you should give your broker a call and ask for better rates.
You should also keep costs in mind when deciding on the sizeof your positions. You see, most brokers ask a minimum brokerage rate, after which the cost is calculated on a sliding scale.
If your minimum rate is R85 and the lowest cost is 0.7% for trades below R25,000, you’d be paying an optimal brokerage when you buy more than R12,000 worth of shares. You can calculate this as follows: 100% brokerage cost x minimum rate.
4. Be patient
Don’t fill your portfolio all in one month. Do it over a period of time. Remember that penny shares move up and down very quickly and if it’s out of my buy range you should rather wait for the share price to come back into the buy range, it often does.
Follow these easy guidelines and save yourself money and hassles in the future. If you are new or just don’t know what shares to buy in any month you can look at the Hottest Shares for your PowA! Portfolio that month. These will be indicated by ** on the portfolio in your newsletter. These are the shares I feel are the best buys for the month.
I hope this helps you in building your own profitable PowA! Portfolio.
Happy Investing
Francois Joubert
Chief Investment Strategist, Red Hot Penny Shares
