You may have heard me mention the term “watch list” from time-to-time and for the serious investor such a list is a key to successful portfolio management. To simplify, a “Buy” watch list would consist of a number of stocks you have on your radar that meet your investment criteria and are good candidates for either new acquisitions or substitutes for positions you may currently have and are looking to sell. It can be as simple as a list on a yellow pad or an Excel spreadsheet that has some minimal information for each name such as price targets, dividend yield, market sector, etc. Or it can be something more sophisticated that may be available from your online broker that offers such a feature. As you can imagine, I have a number of watch lists for the three monitored portfolios as presented here in thebuttonwoodproject and others for my personal and managed accounts. Whether or not you do have such a list, here are some suggestions to follow or get started:
- Don’t overdo it. Keep the list short, as too many stocks to follow may be counterproductive. Be sure the stocks fit your investment objective, be it conservative, income-oriented or more risky issues. If you like to have a portfolio with a mix of one or more goals, be sure to show what objective each stock is in so that the list doesn’t get too lopsided.
- Keep the watch list updated. Monitor it periodically and see if the price targets for pulling the trigger have been exceeded and, thus, the appreciation potential now harder to achieve; or the dividend has been stagnating; or other negative events now make the selection inappropriate. If so, “delete”. Then add a replacement or two.
- Be sure there is a degree of diversification to the list. That is, if you are looking to make a new addition to your account, you want to be sure you will not be getting your entire portfolio out of balance and too concentrated in only a few market sectors. Add the market sector or industry next to the stock name; and using colors may help.
- Unless you are a trader, don’t make the process too complicated. Some online brokers offer an email alert if volume increases by a pre-determined percent, or the price hits a new high or low or exceeds or falls below a certain moving average. This may bring about a less than objective reason to make a move and you always want to avoid emotions when dealing with investment decisions.
- Don’t get discouraged if one of your monitored stocks doubles and you missed the boat. It happens. Believe me, another opportunity will come along. Again, delete and substitute a suitable replacement.
Also, don’t limit your watch list to only the “buy side”. Your active portfolio should have a watch list for exiting existing potions too. As I mentioned in my latest Week in Review, I noted two candidates on a negative watch: Coca-Cola and McDonald’s (also a few others). Once you have determined that a stock no longer possesses the characteristics you considered positive when you made the purchase, it may be time to get out. Baring any significant company or trading event, try to avoid selling a position the days before it goes ex-dividend, as you will lose the preceding quarter’s entire payout. Therefore, you should always be aware of these critical dates, especially for those large dividend payers. A decision to sell a stock, for me, has always been more problematic than buying, so a negative watch list may help remove some of the omnipresent emotions to take your profits (or losses) and move on.