Thoughts on starting a new portfolio – Part 1

In our post on changing Stable Investor’s approach, we mentioned that we plan abandoning our existing portfolio (Monk’s Portfolio). We also plan to start a new portfolio named Dead Monk’s Portfolio (DMP). Reason for choosing this name is given in next few lines.Why Dead?

We want our portfolio to be so easy to maintain that even a dead person is able to do it, i.e., without much thought and activity. 🙂

Why Monk?

For us, monks are ultimate symbols of calmness, serenity, stability and longevity. These are some of the terms which we want our portfolio to be associated with.

Note – The topic may seem a bit haywire as it documents a loud thinking session.

Here are some of our thoughts –

  • Dead Monk’s Portfolio (DMP) can follow a Core –Satellite approach in which core could account for 60-75% of portfolio and Satellite the rest 25-40%
 
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  • Core can be made up of high dividend yield large cap stocks OR low PE, average to good dividend yield large & mid cap stocks OR low to average PE, good to average dividend yield large and mid cap stocks, trading below their book values OR any other combination of parameters and concepts like Magic Formula.
  • We prefer companies which pay regular & increasing dividends as the proceeds can be used to buy more stocks or as a source of passive income. Also these stocks are stable and less risky. But according to experts, this stability comes at the price of lower returns. And as stable long term investors, we are ready to accept non-astronomical returns.
  • Satellite can be made up of companies which offer long term above average growth and which may not be doling out dividends. Such companies generally prefer to invest profits back into the company which may be growing at rates higher than company’s cost of capital OR for novices like us, higher than overall market growth rates.
  • But how do we find stocks which offer stability as well as good dividends? There are many ways of finding such stocks. One is to check the indices that track dividends. Another is to check lists of highest dividend yielding stocks. But such lists throw up names which we are not comfortable investing in : so it would be a good idea to take such lists and add a filter or two like market cap, profitable in last 5 years, etc).
  • Another approach can be to use stock screeners with conditions like large and mid caps, dividend yield of more than 3%, consistent & increasing dividend payouts in last 5 years, trading close to 52 week lows, low PEs  etc. 
  • We are compiling a list of good stock screeners for this purpose and would share them shortly.
  • Another question which has been raised is that does it even make sense to bother about capital appreciation of the Core portion of such a portfolio?
These are just some of our preliminary thoughts and we are still not done with our analysis. We are also exploring other ideas which have not found mention in this post. Let’s wait till the time we finalize the first version of our new portfolio approach (with blessings of the Dead Monk in the grave). 🙂

Written by Dev Ashish

Founder - Stable Investor Investing | Personal Finance | Financial Planning | Common Sense

4 comments

  1. Your ideology seems to emulate what a good Mutual fund does. The fund manager takes care of all these parameters. I believe there would be even less effort if one just invests in a good fund 🙂

  2. @Anonymous
    You are right to an extent. We are in this for making money. But that is not our only objective. Its the process of making money, which we enjoy.
    No matter what people might say, the thrill of getting it right is something which words can't describe.
    As far as MFs are concerned, they do form a significant part of our personal portfolios. 🙂

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