Hi all,
When looking at some of the screens with 70+ stocks in each, how do I diversify my portfolio. As in, how much should I invest in each stock to ensure that im following the screen as should be. Surely I shouldn't invest an equal amount in each!?
TIA
JONNY
Hi Jonny
One of the good screens to look at is Ed's NAPS portfolio, as it gives an idea on how to get diversity without having to spend too much on dealing costs. E.g. it takes the top performing share only from each sector category rather than taking all of them.
So hypothetically you might get your top three shares in the screen you run as Tesco (LON:TSCO) J Sainsbury (LON:SBRY) and Wm Morrison Supermarkets (LON:MRW) Obviously they are all supermarkets, so do you really want to own three supermarkets when you are looking for diversity? So hence you would take the top rated of the three in this case Tesco (LON:TSCO) as that came up first and then move down to share 4 which might be Rio Tinto (LON:RIO) and share five which is Lloyds Banking (LON:LLOY) but not share 6 as that is Hsbc Holdings (LON:HSBA)
So hence you follow the screen in the sense of the screen, but you then subsequently apply a diversity factor of say only the top share in each sector.
Otherwise as you say you end up holding lots of shares, incurring massive dealing costs and unless the whole screen goes up, your winners and losers just kind of balance out to what you would get from investing in a "fund of funds" type thing.
Hope that makes sense.
Tommy
i get your drift, however the screens performance is based on all the stocks, not just top from each so how do i work out the separation of shares and values for such a screen? I use IG and etoro so no broker fees for US stock and a mighty £1 for UK stock....
You’ll find that a lot of the sticks are not available on etoro so the first thing to do is check which ones they accept. Once you’ve done that then split into business sectors. Depending on how many stocks you want to invest in then choose highest rank 1 or 2 from each sector. There is a member that has videos on this, I’ll see if I can find the link and post it once found.
Just noticed you stated “i get your drift, however the screens performance is based on all the stocks, not just top”. Not actually true, it’s my understanding that previous performance is based on top 25 stocks in the guru screen. Do remember that previous performance doesn’t mean it will perform as well now. Take a look at performance figures for past month, year etc they vary wildly. Best of luck.
IG is only cheap when you trade 3 times in the previous month. With regards to costs, US stocks will incur an fx fee when trading in and out. So sell a US stock to buy another will incur an fx fee from $ to £ when selling and from £ to $ when buying,
As for UK, I'm sure its £3 + stamp duty when purchasing. Not sure about £1 but would certainly be interested in knowing?
Obviously CFD/spread betting is slightly different.
The guru screens you don’t know which shares are actually included as it is rebalanced quarterly or half yearly, so the performance is not based on the shares that qualify at the moment. So even the screens don’t follow what is selected, Ive had debates with Stockopedia about this in the past, I think they should show the stocks that are actually in the screen.
Do you buy and sell all the time as some shares will come and go.
Yes IG has 0.5% forex fee and is £3 for U.K. stocks.
