Doug’s Portfolio Clinic

Page

Doug’s Portfolio Clinic

Page 1

© Copyright 2006. ICLUBcentral Inc.

Best Practices:Best Practices:Club Portfolio Club Portfolio ManagementManagement

by Doug by Doug GerlachGerlachICLUBcentral Inc.ICLUBcentral Inc.

April 2010April 2010

© Copyright 2006. ICLUBcentral Inc.

Doug’s Doug’s Rules for a Rules for a

Healthy Healthy Club Club

PortfolioPortfolio

Doug’s Portfolio Clinic

Page

Doug’s Portfolio Clinic

Page 2

Goals of Portfolio ManagementGoals of Portfolio Management

1.1.Reduce RiskReduce Risk2.2.Increase ReturnsIncrease Returns

1. Diversify by Sector & Industry1. Diversify by Sector & Industry

•• Spread out holdings into many industriesSpread out holdings into many industries–– Beware focusing too heavily on retail, Beware focusing too heavily on retail,

consumer goods, restaurants, healthcareconsumer goods, restaurants, healthcare

•• Avoid sector concentrationAvoid sector concentration

Doug’s Portfolio Clinic

Page

Doug’s Portfolio Clinic

Page 3

2. Diversify by Company Size2. Diversify by Company Size

3. Don’t Own Too Many Stocks3. Don’t Own Too Many Stocks

•• Traditional rule: 10Traditional rule: 10--12 stocks offer good 12 stocks offer good diversificationdiversification

•• New research: 15New research: 15--20 stocks provides 20 stocks provides better benefitsbetter benefits

•• In a club: own no more companies than In a club: own no more companies than members can follow effectivelymembers can follow effectively–– Such as 1 per memberSuch as 1 per member

Doug’s Portfolio Clinic

Page

Doug’s Portfolio Clinic

Page 4

4. Don’t Fear Selling4. Don’t Fear Selling

•• ReviewReview stocks after each quarterly EPS stocks after each quarterly EPS announcementannouncement

•• ReplaceReplace (not “sell”) stocks with limited (not “sell”) stocks with limited upside potential or problematic concernsupside potential or problematic concerns–– OverOver--valued stocks are as a big a risk to your valued stocks are as a big a risk to your

portfolio as underportfolio as under--performing stocksperforming stocks

•• UpgradeUpgrade your portfolio often!your portfolio often!

5. Don’t Get Dragged Down by Fees5. Don’t Get Dragged Down by Fees

•• Commissions & costs should be less than Commissions & costs should be less than 2% per purchase2% per purchase–– and ideally closer to 1%and ideally closer to 1%–– Otherwise, fees eat excessively into your Otherwise, fees eat excessively into your

returnsreturns

•• Larger investments also force you to Larger investments also force you to concentrate your energy into finding concentrate your energy into finding absolute best candidatesabsolute best candidates

Doug’s Portfolio Clinic

Page

Doug’s Portfolio Clinic

Page 5

6. Be Tax6. Be Tax--SmartSmart

•• In club, transfer highlyIn club, transfer highly--appreciated appreciated shares to fullyshares to fully--withdrawing partnerswithdrawing partners–– Delay recognition of embedded capital gains Delay recognition of embedded capital gains

until each subsequent partner withdraws until each subsequent partner withdraws from club (could be years!)from club (could be years!)

•• Never forget tax impact of portfolio Never forget tax impact of portfolio decisionsdecisions–– Just don’t be governed by them!Just don’t be governed by them!

7. Portfolio Goals are Moving Targets7. Portfolio Goals are Moving Targets

•• There is no such thing as a “perfect” There is no such thing as a “perfect” portfolio.portfolio.

•• Your club portfolio is always changing, Your club portfolio is always changing, always requiring adjustments.always requiring adjustments.

•• Consider these as “guidelines,” not hard Consider these as “guidelines,” not hard and fast “rules.”and fast “rules.”

•• But beware of consequences if you break But beware of consequences if you break the rules!the rules!

Doug’s Portfolio Clinic

Page

Doug’s Portfolio Clinic

Page 6

For More InformationFor More Information

•• ICLUBcentralICLUBcentralwww.iclub.comwww.iclub.com

•• Write meWrite megerlach@iclub.comgerlach@iclub.com

1212