Scaling Up Portfolio

[robertbanking]

Hello you wonderful and very intelligent people. I do hope you are having a successful week and your investment portfolio is flourishing.

I have done okay with my portfolios, sometimes stocks have done around 10% a year, a few lost maybe 15%. Then there is one or two that have gained around 25% - 30%. I kindly wanted to ask please when structuring my portfolio, if a stock, after a full amount of research, is increasing cash flows, has low debt and meets a good criteria, could i consider putting 40% of my portfolio into that stock please? I know there is more risk, but i just dont seem to be getting very far with my portfolio. I feel its too evenly balanced, i usually put about 20% evenly into stocks in my portfolio. I know Warren Buffett when he initially bought See Candies this was for £25 million, which was out of character for him, but helped him reach where he is today. If anyone kindly had any advice on this i would be forever grateful and thankful, it would mean the world to me.

Wishing you a wonderful day and hope you continue to achieve all your goals and dreams. Sending you lots of good wishes. Take care.

[monabri]

40% in one stock....that sounds far far too risky. You would have to know the company inside out, back to front and upside down ..and even then I'd say too risky. By your own admission " some shares up/some shares down"...how do you know that your stock picking technique (previously not 100% successful) will not lead you astray?

Out of curiosity , would you be willing to divulge the name of this company?

[tjh290633]

I agree with monabri. Overweight shares first worried me in 1997 when the then Lloyds TSB rose to over 16% of my portfolio and the then Zeneca over 10%. I decided at that point that I would set a limit on holding weight. Initially 10%, but as the portfolio got bigger I changed to twice the median holding weight, later to 1.5 times the median. With 20 shares, twice the median is 10%, while with 30 shares 1.5 times is about 5%. The decider is the size of trade that is involved. Too small and it is not economic sense.

With twice the median, you have the option of adding an extra holding at median weight. This situation will arise less frequently at 1.5 times the median, when selective topping up of the other holdings is more realistic.

Some people are overweight in a share because of previous employment by that company. I had friends who had worked for GEC and we're very heavy in Marconi, suffering considerably as a result. Diversify should be your watchword.

TJH

[Dicky99]

could i consider putting 40% of my portfolio into that stock please? .

I believe you're asking the wrong question. You could consider it of course but whether it would be prudent is the question and the answer is going to be no. That said if you're happy with a high level of risk and you have conviction in your analysis go for it, be prepared to take your medicine if it doesn't work out but be aware that WB invests with a long term view not get rich quick strategy.

[BullDog]

If the one stock is Foreign and Colonial, then yes. But if it's something much less diversified the answer is generally no. It's more akin to gambling than investing.

[SalvorHardin]

IMHO all depends on your tolerance for risk. Consider how you would react, and how your finances would cope, if your 40% holding fell by 75% overnight.

Back in 2002 I had roughly 50% of my portfolio in just three oil shares; Soco International, Dragon Oil and Dana Petroleum. All three had performed extremely well in the previous couple of years and I had great confidence in their continuing to grow for quite some time (the market had clearly misprinted oil reserves in the ground).

I was planning to retire and live off my investments in 2003. My fallback position was that I could almost live off the other 50% and could always carry on working. If I didn't have this fallback position there was no way I would have kept 50% in those three shares; it would have been more like 20%.

Now firmly in retirement my three largest holdings are Burberry, Canadian Pacific and Union Pacific at 7% to 8% in each. I won't be adding to these holdings. Since retiring my investment trust holdings have increased from 0% to roughly 30% today. No oil shares nowadays and yet more diversification to come

[XFool]

I am starting to wonder...

[robertbanking]

Thank you very much for your responses, i really do appreciate all your input its greatly appreciated. Thank you very much.

tjh290633 i really like that you set a limit on holding weight. Initially at 10% but as the portfolio got bigger, you changed this to twice the median holding weight. I really appreciate your advice on this i will certainly look into this, thank you very much for mentioning it.

SalvorHardin thank you very much for your response i felt this was enormously helpful and i am very thankful for this. I do hope you are enjoying your retirement. If my 40% holding fell overnight it would not damage finances too badly, but like you i would have to continue working and have a fallback plan with some savings. You have given me great insight to ensure that you can increase your risk but make sure you have other options. Can i kindly ask regarding your oil shares such as Soco International, was there anything in particular you liked about them in 2002 please? For instance growing revenues, low debt, competitive advantages, what made you confident in these please? If you had a moment to get back to me i would be very thankful and grateful.

Enjoy the rest of your day and thanks so much for your opinions they are really appreciated more than you may know. All the very best with your investing and stay positive.

[SalvorHardin]

SalvorHardin thank you very much for your response i felt this was enormously helpful and i am very thankful for this. I do hope you are enjoying your retirement. If my 40% holding fell overnight it would not damage finances too badly, but like you i would have to continue working and have a fallback plan with some savings. You have given me great insight to ensure that you can increase your risk but make sure you have other options. Can i kindly ask regarding your oil shares such as Soco International, was there anything in particular you liked about them in 2002 please? For instance growing revenues, low debt, competitive advantages, what made you confident in these please? If you had a moment to get back to me i would be very thankful and grateful.

Retirement is good!

Soco and the other oils didn't have anything that drew my attention in their accounts. Back in the early 2000s small oil companies did extremely well because of several factors:

Growing demand for oil, combined with a decline in the production from some big oilfields, steadily pushed up benchmark prices from $20 to over $100 (until the 2008 financial crisis). Takeovers of oil companies during this period were valuing oil reserves at a much higher price than the stockmarket valuations.

It was a case of find companies with reserves and promising drilling programmes, check that they had a reasonable amount of cash to fund their drilling, buy their shares and wait.

Soco's share price boomed mostly because it was part of a consortium which discovered several large oilfields off the coast of Vietnam between 2001 and 2007. Oilfields generally don't appear in the accounts at a realistic valuation. The money spent discovering oil goes into the balance sheet as an asset, the estimated value of the oil discovered doesn't.

The stockmarket generally took several months to realise how valuable each of Soco's discoveries were. Lots of private investors on The Motley Fool back then filled their boots and made a lot of money (the post-AGM pub session after the 2007 AGM was very well lubricated).

Dragon Oil had a big Soviet Union-era oilfield in the Turkmenistan sector of the Caspian Sea. It had been badly managed; several years of fixing the plumbing and it became a licence to print money.