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At the end of every year, during the holidays, it's time for me to do my annual review of my portfolio.
For me the year-end holiday is a quiet time, so perfect for this process.
I started this process on 1 January when I checked my portfolio’s performance.
I have written before on how we unitise our portfolio to be able to calculate an accurate return for any given period.
I check each of my three portfolio strategies individually and see how they did over a calendar year.
The “’til death do us part” and second-tier portfolios will be compared against a generic benchmark and I use the Top40, although there is a strong case for rather using the equal-weighted CSEW40* exchange-traded fund (ETF).
This includes the same stocks that make up the Top40, but each is weighted at 2.5%, so the overweighting from Naspers** is removed.
Naspers currently sits at around 25% of the Top40 and no sane person would have 25% of their portfolio in a single stock, and this seriously skews the benchmark.
What I am trying to determine is whether I beat the benchmark in 2017. Then I also check the annualised three- and five-year returns.
I don’t mind the market beating me occasionally over one year. But what if that happens frequently or if I’m being beaten over three years or worse, over five?
If this was the case I would have to stop and consider if I should either adjust my strategy and/or perhaps take on more generic ETF exposure.
I then have a long hard look at the shares I hold, asking myself why I hold them and if the reasons are still true.
Broadly my portfolio is doing well and I suspect most of the stocks I hold will survive their annual review.
The one stock sticking out for me is Calgro M3*, which I’ve owned for almost a decade.
Back in December 2015, when then-finance minister Nhlanhla Nene was fired, I exited 80% of my Calgro M3 holdings, telling myself I would watch the remaining small position and if it weakened, I would exit.
Well, it has weakened, and is down some 50% since I sold the initial bunch. Importantly, Calgro is in my second-tier portfolio and hence the price matters a great deal.
In my long-term portfolio I worry less about price, with both Famous Brands* and Woolworths* having had a tough year.
So Calgro is under threat and will likely be given the boot. Sure, I could hold, waiting for a recovery, but I would rather deploy the money elsewhere.
On the other stocks I hold, I will return to my initial notes from when I bought them and review if the reasons remain in force.
Some of them have struggled in the past few months, but are they changing strategies or was it just a difficult year?
Famous Brands is the difficult one, but my thinking is that we don’t have enough information yet.
The issue is whether it will get the UK acquisition working, and we’ll need to see more results before making that call.
Lastly, I review my trading portfolio. How was the year in terms of profits? (2017 was my best trading year ever.)
But also: did I follow the rules and did I find the process manageable? I switched to trading All Share Index (Alsi) futures on an hourly chart this year and it has been a little harder to always get the entries perfect, so I may switch to the same methodology but using daily charts.
This reviewing and decision-making process will be part of this year-end review.
The last part is to consider if any life changes happened that may require an overall review of your stock portfolio. For example, you might be expecting a baby, or perhaps a child is moving out.
Things like marriages and job changes, for example, can all have an impact on how we’re investing and need to be considered as well.
*The writer owns shares in CSEW40, Calgro M3, Famous Brands and Woolworths.
**finweek is a publication of Media24, a subsidiary of Naspers.
This article originally appeared in the 14 November edition of finweek. Buy and download the magazine here.
