The New Year has just begun, as we head for a brand new chapter, it is important to set a clear plan ahead.

I’m sure most of us have already set personal goals to achieve in 2017 and for some who have not done so, there’s still plenty of time.

Be it in investing, fitness, career or health, it is important to clearly define our goals and breaking it down into actionable objectives.

I’d like to share my investing ritual that I do annually in the beginning of each year, the objective of this exercise is to understand the current situation in your portfolio first and then to identify areas that needs improvement.

Step 1: Check validity of each investment.

I begin with a review of all stocks under my portfolio, the objective here is to check if each stock still satisfies my investment criteria. Review qualitative and quantitative aspects of the each stock and update yourself with its recent corporate actions.

Frequent readers would know that my focus on stocks are liquidation value or net tangible asset value, hence, I would comb through the portfolio to look for stocks that are trading well above its perceived valuation.

My post on deep value investing briefly describes my investment philosophy.

 

Step 2: Check weightage of each investments in your portfolio / Capital allocation.

Many retail investors overlook the need for portfolio management, some are just too lazy to manage it.

This is often neglected by retail investors as many fail to see how this impacts their portfolio returns.

For value investors like myself, most of us tend to buy more of a stock as it gets cheaper in price and in the process, there may be times where we overbought on a particular stock.

If you’re not keeping track of position sizing, it can greatly increase volatility of your portfolio against you. As a general rule, I personally set a limit of maximum 20% of my portfolio on a single stock. Risk tolerance is key, if you are conservative, aim for a lower limit of 10-15%.

Step 3: Ensure a well balanced sector allocation.

In light of the recent oil and commodities selloff, most oil/gas and commodities trading businesses appear to be undervalued. Ensure that your portfolio does not hold high concentrations of certain sectors, this is to protect your portfolio against fluctuations in macro economic sentiments. Be sure that you have a balanced allocation among sectors that are cyclical and non-cyclical.

Step 4: Check for new investments to diversify your portfolio.

You can also build a secondary portfolio with different investment mandate.

As a deep value investor, I not only look for “Cigar Butt” stocks.

With excess capital, I manage a portfolio of dividend paying stocks to supply cash flow income that can be used for reinvestment. I look to build positions in undervalued REITs and healthy cash flow generating businesses.

With a screener (free or paid), look for new investments that fits your criteria to add diversity in your portfolio. I engaged a paid service to screen out stocks with specific characteristics. For common fundamental metrics such as price to book or price to earnings, you can utilize SGX stockfacts or Google’s Stock screener.

For paid screeners, one can consider Shareinvestor’s comprehensive platform which offers fundamental and technical screening abilities.

Step 5: Sufficient cash reserves

Finally, ensure that you have adequate cash reserves to average into existing positions or initiate a new one. % limit of cash reserves are based on your discretion, in an environment where stock markets are overvalued, one would increase % of cash reserves in anticipation of better prices.

If you’re still working, make sure that you have an emergency fund consisting of three to six months’ worth of living expenses in cash.

This 5 step review can be done annually or quarterly, obviously there’s no hard and fast rule when it comes to portfolio reviews. These points are just guidelines on how your can optimize returns while keeping an eye on risk management.