In the Search for Optimal Numbers of Stocks in your Portfolio Part 3


Last week, I asked 11 dividend bloggers 6 questions to learn more about their portfolio and investment strategies. You can read Part#1 and Part#2 if you have missed them. I thought it would only be fair for everybody to share my own perception of how many shares to manage in a dividend growth portfolio. Here are my answers;

#1 What is the size of your portfolio?

My retirement portfolio shows a value of $58,620 as of mid-September.

#2 How many different company shares do you own?

Only 12. My goal is to average a 5% weight for each company I own.

#3 How many new company shares do you expect to buy in 2015?

I already bought 2 this year and I might add another one by the end of the year. My portfolio is segmented in two parts. The first part is my core portfolio representing around 60%-70% of my investments. The core portfolio includes companies I plan to hold *almost* forever. These companies have proven to be very solid in the past and show sustainable dividend growth for the future. Good examples of such positions in my portfolio are Disney (DIS), Coca-Cola (KO), Johnson & Johnson (JNJ), Wal-Mart (WMT), Telus (T.TO), etc.

The second part of my portfolio is focused on growth. While I still select dividend stocks in this segment, I tend to pick companies that have lost value due to a temporary situation. This segment is riskier as the “temporary situation” may become a permanent one. In this worst case scenario, I would probably lose money on such trades. So far, I’ve been successful buying Seagate Technology (STX) while it was trading under $30 and Apple (AAPL) when it dropped around $400 before the split. Recently, I purchased Helmerich & Payne (HP), Black Diamond Group (BDI,TO)), Gluskin & Scheff (GS.TO) and SNC Lavallin (SNC.TO) on the premise they were trading under their fair values.

#4 What is your target or maximum different company shares owned?

I tend to limit the number of different shares I own. The more different company shares I own, the more time I have to spend on following these companies. As previously mentioned, my target is to get as close as possible to 5% weight for each company. I want each position to be significant in my portfolio. Since my time is valuable, I don’t want to waste time following a company that represents a small proportion (e.g. under 1%) of my portfolio. I would rather sell this position and follow only significant holdings.

Obviously, the more I invest, the more I will hold new positions. My target would be to reach around 20 positions when I have 100K and go to 30 once I build a more sizeable portfolio.

#5 How do you manage your asset allocation? (do you have a goal in % for each sector, size of each holding compared to your overall portfolio, do you rebalance your portfolio?)

I look at my asset allocation twice a year. Usually before summer and during the Holidays. These are two moments I have more time to think about the strategy around my portfolio. I don’t have a set % per sector as I would rather use my “growth” segment of my portfolio to focus on a specific sector. For example, I currently have a well driller, a remote equipment renter and an engineering firm with a great stake in oil exploration in my portfolio. These three companies are linked to the energy sector without being pure oil companies. Once this sector bounces back, I will sell a good part of my holdings and move my money towards another promising sector. I also make sure I have a good base in consumer products for my core portfolio.

#6 How do you keep up with all your existing holdings (do you read their financial statements, only headlines during earnings seasons, special reports, etc?)

My day job requires me to be informed each day on how the market is going. I like reading Bloomberg and Google Finance headlines in the morning. I have a newsletter subscription to Factset and a paid subscription to Ycharts. I also read quarterly financial statements along with investors’ presentation of several companies. I do this for positions I hold in my portfolio and for holdings in my Dividend Stocks Rock portfolios as well.

I think it’s important to follow each company you hold closely. The economic environment today moves too fast compared to the pre-2000s. Now, it’s a different story where a giant today, could easily fall 5 years from now. Companies like McDonald’s (MCD) struggle to convince consumers to come back to try their healthier menus and Wal-Mart (WMT) is entering in a massive investment period in its “war” against Amazon (AMZN) for e-commerce. Will they be in a good financial shape in 5 or 10 years? I think it’s more important than ever to not close your eyes on what could be a temporary situation as it could become the new environment for these companies. I intend to hold such companies in my core portfolio, but I will still follow them quarterly to see if they are still going in the right direction.

The fact that I’m maintaining a paid service for dividend investors makes me very up-to-date on several dividend stocks and the economy in general. I guess I wouldn’t do this if I wasn’t passionate about finance. I actually enjoy reading financial statements and understanding how a company makes money!


Conclusion – There are No Magic Numbers

As you can see, there is a wide range of answers on how you can manage your dividend growth portfolio. Personally, I like holding less companies and following them closely as the economy changes so fast. It’s easy to follow good companies during a bullish market as results are good and nobody really worries about what’s next. Further research is required when you want to make sure the company is also evolving in the right direction regardless of what is going on in the market.

On the other hand, I also appreciate another type of investor who would rather buy all companies that are looking good according to his investment philosophy in order to make sure he picks all the good ones and doesn’t let a gem pass through his fishing net.

I’ve always been a big believer that the best investing strategy is the one that helps you sleep at night. There is nothing better than investing without being stressed!


Disclaimer: I hold shares (DIS), (KO), (JNJ), (WMT), (T.TO), (HP), (BDI.TO), (GS.TO), (SNC.TO)

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