Image by: Anders Printz
By Michael Sterling
Drastic decisions in your investment portfolio are never an easy move. Often times, the anxiety will lead us astray and point us towards an unclear direction. Though many investors feel like they have an accurate approach when it comes to shaping their assets, they often fail to ask necessary questions which will either make or break their entire investment plan.
#1) Is The Company Growing Its Sales?
As an investor, it’s always best to have companies in your portfolio that are growing in sales. If the sales growth is “real” or related to one-time only situations is something you need to figure out. Here are some questions to ask to figure it out:
- Did they recently sell an asset?
- Did they have genuine internal growth?
- Did they cut off some meat within their base, henceforth, making their “growth” appear larger?
Read the press releases each company gives (via NYSE.com or CNN Money) to better understand what their management team is saying about the particular quarter we’re in, and pay attention to what the numbers say about passed quarters. Compare growth from quarter-to-quarter, instead of year-to-year. If quarterly sales are increasing, it’s always a good asset to keep in your portfolio.
*Tip: Don’t think of selling your stock immediately after a bad quarter, remember, it’s now old information. Company repairs are under way at this point – see what happens when you stick it out another quarter.
#2) Are There Stock Buyback Programs?
This requires a little common sense from your side of the coin. If a company within your portfolio is repurchasing stock in the open market, instead of using the cash to pay off debt or make further investments within their infrastructure, most likely they feel the stock is undervalued. But this doesn’t necessarily mean it’s bad for you.
Sometimes, the management will do buyback programs to reduce total share count in the public domain, henceforth, improving financial ratios and boosting earnings. This makes their company appeal to analysts. Other times, it is just a PR game to make you think their stock is worth more. Read their press releases and decide for yourself.
Tip: Share repurchase programs can be an exception because it might be a sign that there is going to be significant returns in the future.
#3) Is My Portfolio Diverse Enough?
Putting all of your money into a certain risk level of investments is always going to be dangerous. The more you diversify your assets, the less likely you will lose everything at once. At the same time, over-diversifying is bad because it can prevent your portfolio from growing.
Owning 5 stocks is always going to be better than owning one, however, too many might be cost effective when comparing it to how much is coming out of your pocket in to your returns.
Diversifying your assets will always reduce risk. Allocate your investments among various financial instruments, industries, as well as other categories. Diversification is the most important component you need to reach long-term financial goals with little risk.
#4) What’s Their Best Time Of The Year?
Take a look at the stock chart for the last five years and pay attention to each of your companies. Try to determine the certain parts of the year where their trading is higher or lower, and if it’s repeating itself each time. If it is, be sure to stay aware of it when the season comes. It may affect the way you strategize your portfolio in the coming months.
#5) Is One Of Your Companies Releasing A New Product Soon?
When Apple released the iPod in 2001, many investors were unsure if the company would deliver a decent revenue, yet, the iPod turned out to be revolutionary and skyrocketed the company’s growth through the roof.
A good product can drastically move the share price higher in the following term. Mind you, this doesn’t happen all the time, but if you are able to spot a good product that will get attention from both customers and investors, you might be able to rank in the cash if you keep the company in your portfolio.