Stock Trading Philippines: How To Do Portfolio Clean Up The BOH Way
Updated: Mar 30, 2018
BOH Society’s portfolio clean up approach is the first real step investors can take to getting back on track with their portfolio.
It’ll take a lot of hard work, discipline, and sacrifices but coming back from a 44% loss, for example, is possible. We have seen people comeback from a 60% loss over the past three years. These people were victims of hype and were able to come back after 1.5 years. Now, they are making money in the stock market. Just bear in mind that portfolio recovery from being down 44% or 60% is a multi-year project, but ultimately, it can be done.
While people will normally advise letting go of losing trades, that isn’t always the best option if the portfolio in question is deep in the red, and the owner is trying to trade his/her way out. This is why BOH prefers to focus on raising THE MOST AMOUNT OF CASH by realizing THE LEAST AMOUNT OF LOSSES when cleaning up a portfolio. This is what we call our BANG RATIO.
We already do the math for the bang ratio for our members in our PORTFOLIO CLEAN-UP TEMPLATE. All they have to do is encode the relevant data and then execute to get started with cleaning up their respective portfolios.
REMEMBER, DOING NOTHING IS NOT AN OPTION.
Doing nothing because you’re waiting to get out at breakeven means giving up on multiple trading opportunities, which we’ve had a lot of this past year, but more importantly, doing nothing only delays your recovery. Sitting around waiting for your losses to take care of themselves is a big mistake. We have seen too many people sit down on their losses thinking they’ll be able to get back at breakeven only to see years pass by and yet, nothing happens to their portfolio, let alone their deep losses.
That said, let’s get started with BOH’s portfolio clean up approach:
To illustrate BOH’s portfolio clean up approach, here’s a sample portfolio encoded in our portfolio clean up template which we provide our members:
First things first, BOH’s approach to portfolio clean up is systematic. We prefer realizing losses only from positions that will give us the most cash, or stocks that have a HIGH BANG RATIO. So while others will tell you to sell AT, LC, FNI, and BEL, we won’t do that. Instead, we would sell everything from PHA to COSCO, which should net us roughly Php 6,500,000 cash.
In general, we don’t like selling names with BANG RATIOS less than 1 already. Names with BANG RATIOS less than 1 probably have more upside than downside. So we’d rather treat those names as ZERO already and just keep them until they turn out a profit which can be used to offset the losses from when we sell these last remaining names.
This sample portfolio has another problem: it has too many names, in this case 20. A portfolio of this size should have 7–11 names only, but if the owner wants more, it should have up to a maximum of 13. Why? Too many names in your portfolio will dilute your returns. This sample portfolio has very little cash, only Php 410,299 or 3.4% cash available. To get started with portfolio recovery, we need to raise 50% (or more) cash to trade the portfolio. With 50% cash, you can get out of any hole.
The BANG RATIO in our template already sorts which names to prioritize. However, you can skip the stocks you still like and just move to the next name. Selling everything from PHA to COSCO will net us roughly Php 6,500,000 cash. The Free Cash columns tells us that selling PHA to COSCO will yield us 53.6% cash. There will be around Php 800,000 of realized losses, but that’s just 7% of the market value of the portfolio, so it won’t be too difficult to recover from.
In sum, portfolio clean up is possible only if you have CASH, so the first thing you need to do is to raise up to 50% cash. REMEMBER THAT DOING NOTHING IS NOT AN OPTION.
Our portfolio clean up template will tell you which stocks have a HIGH BANG RATIO. As illustrated in the sample portfolio above, one of its problems was holding too many names. A portfolio of that size should stick to 7–11 total names (or adhering to the names-to-capital ratio posted below).
If Php 10 million and up, hold 7 to 11 stocks
If Php 3 million to Php 10 million, hold 5 to 7 stocks
If Php 500,000 to Php 3 million, hold 3 to 5 stocks
If less than Php 500,000, hold 2 to 3 stocks
On a parting note, aside from trusting BOH’s investment process, we also need to eliminate BAD HABITS we are accustomed to.
You see, more often than not, the portfolio problems of investors aren’t just confined to the BIG LOSSES in a FEW TRADES, a scenario highly likely caused by an ALL IN mentality, or the lack of a robust investment process. The problem also includes OVERALL PORTFOLIO DESIGN — portfolio design related to WEIGHTS, and portfolio design related to sub-optimal NUMBER OF NAMES as well.
In this case, the bad habit we need to eliminate is the tendency to buy small of a lot of names again with the new cash raised. Holding more names than our recommended names-to-capital ratio will not only dilute returns, but, in all probability, result in a portfolio that finds itself deep in the red once more.
At BOH Society, aside from teaching our members that optimal stock ratio, we also provide them instruction on portfolio design, including stock selection and weights. We provide them the tools they need to determine how much of their portfolio they should allocate to a specific name. This is because weights can boost returns while managing risks. It will also be what will save the portfolio from strange volatility swings.
Again, when your portfolio is deep in the red, DOING NOTHING IS NOT AN OPTION. It’ll take a lot of hard work, discipline, and sacrifices, but coming back from a deep loss is possible.
And BOH’s portfolio clean up approach is that first real step.
Join BOH Society today to gain access to the most comprehensive stock coverage on the Philippine stock market and to get a copy of our PORTFOLIO CLEAN UP TEMPLATE.