Live Stream Q&A 11-19-2020
In this video, Glenorchy Capital fund manager Chris MacIntosh elaborates on how he builds a portfolio for his fund. He provides some great tips on how to think about building a portfolio without really making it too complicated.
Start With Sectors That Represent Deep Value
Chris starts with multiple sectors that represent deep value. He recommends not getting overly position-sized in any one sector.
For Chris, he shoots for a 5-10% weighting for any given sector.
Break Down Your weightings Even More
50% of each sector should be really solid companies. Positive cashflow. They don't have humongous debts. Not always achievable but always strive for the best quality companies.
To balance things out, he recommends adding smaller cap companies to the mix that have more asymmetric upside potential.
Mind that you have a 50% allocation to solid, large caps that won't move the needs as much as a scrappy young small-cap could. So it's important to have them in the mix.
Also, he adds that each of your equity positions should not make up more than 1-2% of the capital under management.
Don't Get Driven by the market
When you have a diversified portfolio, across multiple sectors representing deep-value, using a portfolio mix, as mentioned above, then what happens, is that you don't get driven by the market.
For example, if one of the single equities in your portfolio falls 30%, it's not going to wreck you. Technically, you only lost 30% of the 1-2% of your money being put to work.
You can sleep at night. Especially knowing that your portfolio is fundamentally sound. So for whatever reason, if an equity takes a hit, whether it be market sentiment or a liquidity issue, the chances of a rebound are far greater.
Will it pass the ‘Would you buy it again' test?
If you woke up one morning to find one of the equities dropped 30% would you buy it again? According to Chris, the answer should always be yes. And this is the secret to building a portfolio.
Own deep value companies across many deep value sectors. Focus on quality. Make sure you're spreading your money across enough high-quality equities that way when the market corrects, which it will, your losses are minimal and temporary.
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