Thoughts on starting a new portfolio – Part 2

Without wasting any time, we start from where we left in our last post.

  • We mentioned that we might take core-satellite approach for Dead Monk’s Portfolio (Why this name?). After giving it a second thought, we think that instead of going for 1 Core + 1 Satellite approach, we can take 1 core + 2 satellite approach.

Core

  • This part can account for 70% of portfolio size and have stocks which have a good and consistent record of paying generous dividends (if possible, increasing year on year).
  • Stocks in core part should be bought when markets are down (markets trading at low multiples of PE, PBV & Div Yield)
  • Stocks themselves should be trading below their average historical PEs, close to their 52/104/156W lows, below their book values.
  • This part may consist of stocks which are generally referred to as Boring stocks.
  • We are still pondering whether it (even) makes any sense to bother about capital appreciation of this part of portfolio?

Growth Satellite

  • This part can account for 20% of portfolio size and can be populated with companies which offer above average growth potential in long term. These may or may not be doling out generous dividends.

Special Situations + Miscellaneous Satellite

  • This part can account for a maximum of 10% (ideally 5%) of portfolio size and can have stocks which are in midst of certain extraordinary situations. Frankly speaking, this would form the speculative part of portfolio.

This is second in a series of our thoughts on developing a framework for long term portfolio (DMP). You can check Part-1 here.

May the Dead Monk give us wisdom 😉

 

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