Equity Portfolio Thoughts – Control, Wealth and your Reflection


Date 23rd March 2015  


  • An Indian investor is free to invest in any of 5000+ stocks listed on the exchanges.
  • He may have a range of needs in his equity portfolio, which we have captured in a hierarchy.
  • He may like to progress on this range and exercise his choices in a calibrated fashion


I was speaking to an investor a few weeks ago. A busy executive, he had a medium size equity portfolio by value. But I was astonished to see that he had almost a hundred shares in his Demat account. And he looked at me and asked, “So what should I do with my portfolio?” I was of course on a tight time schedule, and ran through my 4-5 step standard template for portfolio discussions.

A little later, on reflecting on the above question, I realized that the answer to the above question can be very nuanced. And really there can be multiple approaches and answers to this question.

Let’s step back to the very basics of the question, what does a person need from his equity portfolio?

An Equity Portfolio – A Hierarchy of Needs

To answer this question, we need to draw parallels from the Maslow’s hierarchy of needs, and it is summarized below. Expressed simply, every human can have a number of needs, but at different times in his life, and in different situations, the needs change. Generally speaking, the needs follow a hierarchy.

Portfolio hierarchy, JainMatrix Investments

An Equity Portfolio – A Hierarchy of Needs. Source: JainMatrix Investments. Click to enlarge.

In a similar way as Maslow’s needs hierarchy, a person’s equity portfolio reflects different needs in investing and his ability to focus efforts and achieve his personal needs and objectives. Here are the levels that I am able to present:

  1. Gain Control: I have seen many equity portfolios that are nothing more than a legacy of 15 years of sporadic investment enthusiasm. With funds available and a pep talk by anyone, individual investors may make a series of purchases. This may be followed by 6 months of watching the results unravel, followed by 4.5 years of inaction. All of which may be repeated again. As a result the shares may be an uncoordinated mass of choices from the past. Selling is more difficult than buying.
    • It may seem that ‘Do nothing’ is an option here. After all these stocks can sit in your portfolio for another 5 years, and your carrying cost is as less as Rs 1000/year. Wrong. If you are not in the right stocks for a ‘long only’ portfolio, chances are that over time your portfolio will decay in value rather than strengthen.
    • The task of the Investor (along with his portfolio adviser) would be to try and gain control of this portfolio. The basic issues here are –
      • 1. What’s the objective and primary need of this portfolio?
      • 2. How many shares are we comfortable with?
      • 3. Whats the risk appetite and profile of the investor?
      • 4. How do we achieve these 1, 2 & 3, and in what time frame?
    • Also essential to Gain Control, is the need to identify and exit the low potential stocks.
    • In my opinion even stable long term (example – avg. holding of 10 years) investment portfolios should be reviewed once a year to align with macro/ sector events and to evaluate opportunities.
  2. Absolute Returns and Profits: Typically equity trading has a very clear objective, of maximizing returns from any trade. Similarly we obviously invest money with the plan of gaining profits and building wealth. The question here is, over what time span? One hour? One week? One year? A decade? New investors are typically looking for a simple quick absolute return.
    • For an investor, the portfolio strategy here is to simply find the shares that have a high confidence rating of highest upside potential. To find such shares is an ongoing exercise. Many successful finds for example may achieve their potential and may not be investment worthy any longer. Others may continue appreciating for decades. However this exercise is also fraught with risks. Many highly rated shares may fail. Or a sector may be affected by an unexpected event.
    • Its critical here to not just understand a target investment firm for its financials, management and business assets, but also the sector and macro context of this firm.
  3. Safety and Stability: Very soon a trader/ investor may realize that just desire for profits and available funds is not enough. One has to approach investing with a safety plan, and temper high profit expectations with realistic back up plans and a safety net. Am I taking too high a risk, with the possibility of a big loss? What’s my worst case scenario? What risk am I comfortable with? And for how much of my portfolio? With some experience, an investor is able to balance the profit expectation with an understanding of risk, and build his checks and balances.
    • For some thoughts on Risk v/s asset classes see LINK.
    • Every asset class has an associated risk. And a good fundamental researcher can assess and understand this risk well. So for a long term equity investor to have a 100% returns per annum expectation is asking for too much. He may actually get it but only once or twice in a decade. And this may soon be followed by a hurtful loss, equally unexpected.
    • A good equity Portfolio should be able to limit equity holdings within individual firms and within a sector, and also align the market cap focus with risk profile such as Safety – large caps, Higher risk – mid caps and Aggressive – small caps.
  4. Belonging: Community, Region, Profession, etc: At another level of the investment hierarchy, a wealthy investor may start thinking of his investments not just as a means to grow wealth, but as an expression of his place in society. This means the person is focusing a part of his funds towards the things that are important to him, an extension of his personality.
    • This could perhaps mean that for a Bangalore based person like me, I could invest in firms like Titan, Brittania Industries, BF Utilities, Mindtree, etc. which are local firms. I may get a feeling of pride to see these firms doing well, and even though a small shareholder, would be sharing a part of a big success.
    • Similarly as a former software executive, I may like to invest in a few software small caps that I not just understand well but also hope that my ownership in a small way can contribute to its success. It’s more about encouragement and support than just returns.
    • In terms of an exclusion list, a lot of people may be uncomfortable about investing in sectors such as cigarettes and liquor/alcohol. Its really upto the investor to be comfortable with his investments, right?
  5. Self Actualization: A wealthy investor may actually decide to focus his funds towards doing real good, or addressing problems of society. In the past the only way one could do this was in making donations to NGOs, and Education or Religious Trusts. In today’s economy there are several listed corporates that address the needs of the weaker sections of society, or of the environment, and still have an objective of making profits for shareholders. I see no essential compromise in achieving both these objectives. There is, possibly, “A Fortune at the bottom of the Pyramid”.
    • I believe firms in sectors like education, environment, renewable energy and some NBFC’s in housing finance and micro-finance may be addressing and solving large problems of society.
    • Readers are invited to revert to me with their ideas or suggestions of such firms that they have come across.

In Conclusion

Different investors may have vastly different needs in their equity portfolio, and we have mapped these in the form of a simple hierarchy. Many of us could be frozen in inaction at Stage 1 of this hierarchy. Others may have progressed along the stages and gained control and solid wealth from it. Some may actually have a portfolio that expresses their hopes and dreams for their society. Its essential for an Investor to reflect objectively about his own portfolio and think about improvements.

So where are you in this hierarchy? Drop me an email to see if I can help you with aligning your Equity Portfolio to your own needs. See Portfolio Review for a short description of our services.

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