Introduction to Constructing a Portfolio

Once you know how to analyze companies and pick stocks, it is time to focus on putting groups of stocks together to construct your stock portfolio. While Nobel prizes have been awarded and entire books written about this topic, we’ll try to briefly summarize the academic theory and focus on some of the more important aspects of portfolio management.

Though we will supply some guidance, no one answer is right for everyone when it comes to portfolio construction. It’s more art than science. And perhaps that’s why many believe portfolio management may be the difference that separates a great investor from an average mutual fund manager. Famed international stock-picker John Templeton often said that he was right about his stock picks only about 60% of the time. Nevertheless, he accumulated one of the best track records in the business. That’s because great managers have a tendency to have more money invested in their big winners and less in their losers.

While we don’t own any secret recipe that tells you which stocks will be the big winners in your portfolio, we can guide you in deciding how many stocks you may need to own and some other considerations.