A start from scratch portfolio: Each month Anthony Bolton takes a piece of paper and writes five columns across the top: ‘strong buy’, ‘buy’, ‘hold’, ‘reduce’, and ‘?’. Then he lists every company in the fund under one of the headings.
This technique is a way of getting to ‘a start from scratch’ portfolio – if you were starting with cash now, how would you allocate it to shares?
It helps him question his conviction levels.
In some cases it will highlight the need to do some more investigation to make sure he really understands the positives and negatives, and where more information must be sought (from analysts or from the company’s management).
Mistakes are inevitable
In running a portfolio Bolton says you need to be aware that a substantial proportion of your investment decisions will turn out to be bad however skilled you are – you must not expect to be right every time.
To be involved in managing a portfolio is to make mistakes regularly. If you can keep the mistakes down to only 40 – 45% of your investment decisions, then you will have a good hit rate; one that is superior to most investors.
You only need a few winners to outperform – try to win by not losing too often.
Even with all his experience Bolton reckoned that at least two out of five of his investment decisions are wrong.
Bolton keeps a watch list of companies that he thinks migh
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investing is about making the right decisions, not many decisions.