Portfolio Feedback

I would like some feedback on my portfolio and investing strategy. I have been investing for about 2 months with Freetrade.

I would say my main strategy is investing in ETFs and only investing in individual stocks if I understand them very well. I personally do not believe in needing to diversify, if you buy a few good businesses then there’s no need to diversify, if you’re investing in the long term.

I have only invested in Microsoft and Tech ETFs, and would invest about £250 each month. I’m a software developer, and tech is the only thing I understand very well and that’s why I chose to aggressively invest in it. I also plan on expanding and investing in more ETFs in the future, but right now these two are the only ones I’m comfortable in

What are some of your thoughts on my thought process and strategy. Is it flawed? Anywhere you think I could improve on?

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40% of IITU is comprised of Apple and Microsoft ( 20% each ) so there’s some crossover with your Microsoft holding.

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wouldn’t say it’s a bad thing, but you have more exposure to MSFT, so if something was to go tits up, it would hurt both your positions

That’s a good point. Is the crossover a bad thing? Does it mean my portfolio is inefficient?

That’s true, but I doubt it would with Microsoft currently. Microsoft may go tits up in the short term, but long term I think they’ll be fine.

MSFT a hold for life I think…especially with their research into printing data on to glass.

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I agree. I saw that and I think it’s amazing what they’ve been able to achieve. Also if that glass technology gets better, it would further improve their cloud service Azure.

Historical wisdom has it that you should pick at least 30 stocks for a decently diversified portfolio.

In 1970, Lawrence Fisher and James H. Lorie released "Some Studies of Variability of Returns on Investments In Common Stocks“ published in The Journal Of Business on the “reduction of return scattering” as a result of the number of stocks in a portfolio. They found that a randomly created portfolio of 32 stocks could reduce the distribution by 95%, compared to a portfolio of the entire New York Stock Exchange.

If you primarily invest in ETFs, like you, you can capture meaningful exposure to the entire global market portfolio with as few as 12 ETFs and/ or mutuals and do so at a relatively low total portfolio cost.

I do worry about you being overexposed to the tech sector. For a well balanced portfolio you must cut across the dimensions and styles of a company like large/small, growth/value, foreign/domestic, as well as the various geographies.

At the end of the day, the degree of diversification is largely driven by your risk appetite and conviction. If you believe that tech is to outperform most others, and you can accept a potential disproportionate fall during a downturn, then go for it.

If not, you may wish some more diversification, especially since you are not a professional investor, and even for the professionals it’s near impossible to continually outperform the market through active investment management.

Personally I invest mostly in ETFs and ensure I have a good spread across company size, growth, geography and industries, with 20% of my future portfolios in single stocks where I have a high conviction on long term bets. However, I do also see that 20% as “play money” that I can afford to lose.

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Buffet promotes the ides that there is no need to diversify if you invest in good stocks which is why last year he had around 1/3 in Apple. I respectfully disagree for 3 or 4 reasons:

  1. you average investor is not Warren Buffet
    And their access to new information is likely to be very slow and they do not have his ability.
  2. Billionaires can play with millions. You have 1,000. If you have assets of 100k I’m not too worried, though any success and you’ll just invest more like this until it bites.
  3. Nearly every company has its life. One day microsoft shares will slump and die. Maybe not in your lifetime.
  4. if the top shareholders and especially the board sell off, the share price will crash. There doesnt need to be anything wrong. Your reasoning for investing remains the same. But you will wonder what you did wrong. The answer will be that you had too much in one stock. Always diversify
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IITU is an interesting twist on US Tech ETFs - no Alphabet / Facebook and Visa / MasterCard included in their Top 10:

Security Weight
APPLE INC 19.68%
MICROSOFT CORP 19.34%
VISA INC 5.18%
MASTERCARD INC 4.27%
INTEL CORP 4.19%
CISCO SYSTEMS INC 3.27%
ADOBE INC 2.57%
SALESFORCE INC 2.32%
NVIDIA CORP 2.32%
ACCENTURE 2.15%

Honestly I think investing in 30 stocks is crazy. I don’t think I’d be able to keep track of all 30 of my investments. Yes, I do primarily invest in ETFs, that will be my strategy, but when I invest in individual stocks, I only invest in the ones I can objectively back.

I agree with your comment on me being over-exposed to the tech industry. I think that too, but I have found that whenever I invest in stocks I don’t understand, I tend to panic sell when prices go down. However, when I invest in things I understand and know, I don’t really care if the price goes down.

I’m the same as you, I’d say 70% of my strategy is ETFs, the other 30% is in individual stocks that I’m certain will do good.

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I have probably 70. I dont even count. The more I have the more I learn. No better way of learning I think.

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30 is universally seen as the bare minimum for a well diversified portfolio, and many argue that’s even not enough - hence why investment professionals are highly paid.

The counter argument is that if you’re a DIY investor, as long as you invest for the long term you don’t have to keep close taps on those 30, provided that you indeed don’t panic sell and remain high conviction.

Time in the market still outperforms timing the market, as long as you are diversified enough as every industry, geography, etc has up and downturns.

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I agree with buffets ideas.

  1. I disagree. Being a software engineer means that I’m very close to the tech industry and emerging technology, I will know of future trends way before the rest of the public catches on. So I think I would have insider knowledge and that gives me a big advantage.

  2. £1 billion and £1k is the same to me in principal. It’s not about how much money, but how you decide to use it. If buffet had the same amount of money I had to play with, I’m sure he’d play with it in the same way as he would if he had 1 billion. So I don’t think it’s the amount of money that matters, it’s how you utilize what you have.

  3. I guess so

  4. Yes I guess so

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That’s an insane hubris. Once a software engineer learns about a new development that he hasn’t created himself, it has been incorporated in the price by the market for ages. Otherwise all software engineers would be professional stock pickers :smiley:

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I definitely don’t mean to come across like that. I guess what I mean is, being a software developer gives me insight into the tech industry, and that gives me an advantage in picking stocks that would perform well in the next couple years.

I still find it an odd statement.

I am a strategy director at one of the largest investment managers in the world. No kidding. Still doesn’t make me an expert on stock picking, or portfolio construction, although I am likely to be better informed than most. Perhaps that’s why I appreciate the need for diversification.

Furthermore, If you check Warren Buffett’s portfolio, minority holdings alone are spread across 50-odd different companies with a good spread across industries and geographies, although he has a bigger exposure to large companies given his investment ethos. He too gets the virtues of diversification.

Having said that, I get what you’re saying and if tech is your thing and you get it, overindex in that but still ensure a bit more of a spread I’d argue.

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I started buying IITU a few weeks ago & I then had an absolute heart-attack when I saw how few shares were traded each day - average volume is around 40,000.

Does anybody have an opinion on this being a liquidity issue?

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Is this down to it being such a long-term hold? Or is the fund size just really small

For me it was a long term hold as I wanted to get in on Apple/Microsoft/Visa/Adobe etc without committing a lot of cash to individual shares - fractionals still appear to have no timeline.

But this ETF has $1B in assets so is not small & is listed on 6 exchanges of which, LSE is buy far the largest. But with such low traded volumes I genuinely concern with liquidity, I know market makers are there to pick up orders but any severe (read; catasrophic) conditions would likely see this fall apart.

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