The High Performing Portfolio
A high performing portfolio has a dual mandate to generate growth and minimize setbacks at the same time. A high performing portfolio strikes a balance that reflects the natural condition of the overall economy and has suitable diversification so that at least some investments within the portfolio will flourish given whatever circumstances occur.
To create a high performing portfolio, the construction process means a “pinch of this and a pinch of that,” culminating in an account that provides superior investment performance. Sometimes this process can take a while and test our patience. Ultimately, these carefully chosen components will reflect the good things happening in the investment ecosystem and the portfolio will deliver long term growth.
A high performing portfolio needs to own the most relevant companies in industry that shape the business landscape. These companies are recognizable names and their products and services are well known. Amazon, Facebook, Federal Express, Honeywell, John Deere, and Union Pacific are examples of holdings that we might use for client portfolios. These companies are impossible for investors to ignore.
A high performing portfolio needs stocks that hold the best relative strength. These are companies that have the best recent relative price performance compared to all other stocks. They may not be immediately recognized as household names. We currently own Acuity Brands in this category (up 50% since the February 11 low for the market). Ulta Salon and Equinix are also great examples of relative strength in the current market.
A high performing portfolio has investments that are complementary to the macro-economy. These investments benefit from prevailing economic themes. For example, the current economy is marked by low interest rates, muted economic growth, and central banks that are printing money. Under these economic conditions, dividend paying stocks, utilities, and gold, are more desirable to investors and will work well.
A high performing portfolio needs diversification. This means investing in areas which are out of favor or neglected by the investment mainstream. We invest in companies that are substantially down from historic levels as potential turnaround candidates. These investments give clients diversification because stocks that are oversold are more resilient, withstanding market downturns more readily. We also inject diversification by investing in foreign markets because these markets can perform differently than the US markets.
Finally, a high performing portfolio must generate profits. Our client investments need to be fruitful so this means selling stocks for gains. Stocks typically top out and decline at some point, so investment gains need to be harvested.
The construction of a high performing portfolio will lead to good long term growth for our client assets.