What I've learned about my own portfolio management processes in my first month as a member of the 7investing lead advisor team.
February 22, 2022
I’m now officially one month into my role with 7investing, so it seems like a good opportunity to reflect on what I’ve learned about my own investing process as a result of collaborating with the lead advisor team.
Microsoft’s CEO, Satya Nadella, was quoted in 2020 as saying that the pandemic caused “two years’ worth of digital transformation in two months.” In a similar vein, I feel as though my first four weeks with 7investing have moved my due diligence processes forwards by at least four years!
I’ve been an investor for nearly two decades, and always felt I had a fairly robust framework for analysing companies and managing my portfolio. A month on, with my second company Deep Dive now under my belt, I realise that there were many gaps in the way I was going about researching my personal investments.
I’ll be totally honest, I’ve never really been a balance sheet guy. I always used valuation as context to an investment decision, but rather deliberately it was always the last part of my process. That’s worked for me personally, but it definitely engendered some laziness in actually endeavouring to understand the financials of a company, beyond outline valuation measures. Burying myself in the balance sheets and income statements of my February 2022 and March 2022 stock picks has really been helpful in getting a clearer picture of the opportunities and threats both companies face, so that’s something I’ll always do in a more robust manner going forward — and actually, I’m looking forward to reanalysing my existing core portfolio holdings over the coming year, to gain a more comprehensive understanding of their outlook.
The other key takeaway from my first month in the team is that my personal portfolio management process was completely lacking any form of structured framework for selling.
I try to scribble down a sentence of rationale whenever I trade, mostly a reminder of my thought process at the time to support future analysis and improvement. Looking back at those comments for a few example sales in 2021, I noted the following:
Having now sat in on two sell discussion calls with the 7investing team, I realise that my own approach to selling still has many deficiencies, and is driven primarily by subjective sentiment rather than cold hard facts. I feel like this has held my returns back in two key ways:
Putting those two insights on my overall process together, and also reflecting on the actual 7investing sell discussions I’ve participated in, what I’d like to start doing in the future is to semi-regularly screen my own portfolio for weakening fundamentals, factors like rising levels of unsustainable debt, or significant issuance of new stock. I really don’t look at these factors at all once I own a company, so I feel like it’s going to add a lot of value to the way I manage my investments personally to add this level of tracking to my own portfolio management processes.
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