SQC Framework
The investing landscape consists of a plethora of options. We use our market expertise to spot a few large opportunities from a myriad of choices based on your individual needs. This process of choice simplification helps you pick from a focused set of recommendations; removing investing noise and focusing on winning investing ideas.
Risk comes from focusing on ‘Outcome’ and not on ‘Process’, hence we have introduced our proprietary S(Style) Q(Quality) C(Consistency) of the fund manager identification process.
Focused portfolio Approach
You must have heard, too many cooks spoil the broth. Similarly, while making a portfolio, remember, too many stocks spoil the performance of the portfolio. If you are an equity investor, in quest of knowing everything about everything you end up knowing nothing. This is more probably because your portfolio may have a higher number of stocks while you aren’t really able to concentrate on any. You don’t need 100 stocks to make money, 15-20 good names will do the trick. Wealth creation in equity is an art; let us inform you about the 5 Key secrets of focused portfolios approach
Risk diversification
Having a portfolio with multiple stocks does not really help you diversify risk. Studies show that the risk is inversely proportional to the total number of stocks in the portfolio. Let us simplify it further, the graph here shows a reduction in risk as the number of stocks rise but after 20 stocks in portfolio risk remains constant. The stocks after the first 20 will have no change in risk showing the minimal risk. Considerably, having too many stocks does not really add up to your portfolio for a long term wealth creation.
Long Tail stocks in portfolio
Large trash bin overflowing garbage (rotten fruit, old tires, packing of plastic, metal and glass). Trash fallen to the ground. Flies flying.
You just need adequate quality stocks in your portfolio and then you’re set to sit tight and hold onto your holdings for years to reap the benefits. The long tail stocks bring down the quality of your portfolio and impact the overall performance of your portfolio in long-term compared to the focused stocks in your portfolio.
Focused Portfolios approaches have higher conviction
Businessman sitting with his arms raised on a graph
Too many stocks in your portfolio signify lesser conviction, hence it may adversely affect the qualitative portion of stocks in your portfolio. Focused portfolios are scientific and process driven portfolios with higher probability of being right. Unlike the long tailed portfolios, focused portfolios stick to fundamentals and it’s not a spray and pray game.
Focused portfolios are easier to manage
Let’s consider an example of a classroom, a smaller number of students with a similar approach to studying together would give a better overall result than a class of 100 students with different approaches to studies. This is the result of focus on overall growth of the class by the trainer. Similarly, the qualitative stocks in your portfolio may give a better overall performance when they are managed well. There is a high possibility of weakening the performance of the overall portfolio due to the stocks which do not do well and tend to be difficult to manage due to higher number of total stocks in the portfolio. Investors with a good wealth creation strategy invest in a few stocks with a great quality and manage the portfolio smartly. They do not want to try and play with the stocks that may not pass their parameters of quality. Thus having an adequate small number of quality stocks is manageable and allows higher opportunities to learn and implement strategies.
Focused portfolios signify quality
Businessman in first place of the podium The topics of business through images of sport and athletes in the competition. Competition success and work
To Conclude
A focused portfolio approach must hold the stocks / Funds which possess enough potential to give higher returns. A smart investor will not want to dilute her/his concentration on the stocks that do not add a significant value even after considering the power of compounding. Quality of portfolio is also determined by adequate attention given to the stocks in your portfolio. The quality of stocks thus is one of the most important characteristics of the focused portfolios. Focused portfolio serves as a key factor in long term wealth creation. The quality of stocks / Funds and the limited number of stocks / Funds in the portfolio signify the overall good quality of portfolio and higher conviction for performance and vice versa.
