Monthly Portfolio Update #9 (Sep 2024)
Dear subscribers,
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, where I will share more about my investing approach, my holdings, and my performance.
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 this month:
Performance: Since their inception in October 2023, the stock and ETF portfolios have returned 25% and 18% respectively.
Portfolio composition: the stock portfolio is almost entirely invested (94%), while the ETF portfolio has sizeable cash available (25%). I currently own 20 stocks and 10 ETFs.
Activity: it was a very active month as I initiated 5 new positions and made 7 sales.
This Month’s Takeaways:
It has been one of the most active months for the stock portfolio, as I leveraged the increased volatility and sector rotation to make several adjustments made. I also took the opportunity to lock in profits on positions that had run up too fast. It's never a bad idea to take profits occasionally and raise cash to deploy into better opportunities. And in recent weeks, some attractive new bullish setups surfaced.
On the macro side, I reduced my overall exposure to 75%, as the 'everything rally' appears to be over. I have seen some long-term trends being challenged, particularly in Oil and Ethereum. The next few months will be crucial in determining whether the bull market that powered many market segments is still alive or if we're heading into a more cautious, risk-off environment.
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 +25%. In the last month, the portfolio has returned +3.3%.
My Current Holdings
Here's an overview of my current stock portfolio: 94% is actively invested, with the remaining 6% kept in cash. The portfolio has 20 positions, and the best performers are PHM (+76%), NFLX (+63%), and ISRG (+48%).
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