Monthly Portfolio Update #5 (May 2024)
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Welcome back to My Weekly Stock, where we blend in-depth market analysis with proven momentum-based trading strategies. My mission? Help you navigate the financial markets with unbiased, data-driven insights you can act on.
This mid-week update is about my long-term portfolios. Notably, I will share more about my investing approach, my holdings, and my performance.
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THIS MONTH’S HIGHLIGHTS
My portfolios for long-term investing are based on 3 common principles: entry/exit based on the weekly chart, diversification, and compounding. Here are the key highlights for May 2024:
Performance: Since their inception in October 2023, the stock and ETF portfolios have returned 17%.
Portfolio composition: my stock portfolio is almost entirely invested (86%), while the Macro ETF has a sizeable amount of cash (26%) available to deploy as opportunities arise. I currently own 17 stocks and 9 ETFs.
Activity: a lot more transaction than usual this month as I used the pullback as an opportunity to adjust my portfolios. I have initiated 4 new positions and made 6 sales.
This Month’s Takeaways:
Both of my portfolios had a challenging past month, but they finished mostly in line with the broader markets. They also had more activity than usual, particularly for the stock portfolio, driven by the earnings season and the overall weakness in the market.
Market pullbacks, while frustrating, allow me to weed out weaker positions and provide opportunities to invest in high-quality stocks at attractive entry points. Embracing this volatility has taught me to see beyond short-term noise and focus instead on long-term benefits. And once this correction phase concludes, I am confident my portfolios will be stronger and ready to capitalize on the next phase of this bull market.
LONG-TERM STOCK PORTFOLIO
My Approach
I start the stock selection process by filtering stocks within the US markets through fundamental criteria. This method usually narrows my focus to approximately 30 stocks. To ensure these stocks continually meet my investment criteria and to adapt to evolving market conditions, I update my watchlist every 3 to 6 months. This disciplined approach helps maintain a relevant portfolio.
My investment approach is anchored in 3 fundamental screening criteria:
Growth: I target companies exhibiting over 10% Earnings Per Share (EPS) growth and more than 5% revenue growth
Margin: I focus on companies with a Return on Invested Capital (ROIC), Operating Margins, and Free Cash Flow (FCF) margins above 10%. These indicators reflect management's efficiency and attractive company's profitability.
Balance Sheet: I look for companies with a Debt-to-Equity ratio below 1 and a Current Ratio above 1, which suggests financial health and stability.
The essence of my portfolio strategy is to invest in growing companies with attractive margins and solid financial foundations. These traits closely align with the potential for long-term stock price appreciation.
Identifying such companies is crucial, but the timing of investments is equally important. To this end, I use the Exponential Moving Average (9 and 30) on weekly charts. The process helps me time my entries and exits and ultimately find setups with attractive risk-reward profiles.
I allocate around 5% of my portfolio to each investment, balancing risk management and potential returns. The holding period for these positions can extend from several months to years, assuming they sustain their positive momentum. This approach ensures that each investment has ample time to achieve its full value.
My Performance
I'm confident that my hybrid approach can produce substantial returns over time, and my back-testing has suggested so. Since its inception in November 2023, my portfolio has achieved a cumulative return of +17%. In the last month, the portfolio has lost 4%.
My Current Holdings
Here's an overview of my current stock portfolio: 86% is actively invested, with the remaining 10% kept in cash. The portfolio has 17 positions, and the best performers are AMAT (+46%), PHM (+51), and NFLX (+33%).
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