Building a portfolio: Attitude to risk and personality traits

Thursday, 15th October 2009 09:30 - by Riddler

Hello fellow traders. The much-documented fall to c4,900 and perhaps beyond hasn’t happened yet, and sentiment is running high today, but that doesn’t mean I have taken my eye off the big picture. If the FTSE100 doesn’t breach 5300 this week it never will, and today’s rises will just be welcome bonus points. However, there is certainly plenty of capital floating around from private and institutional funds, partly because some people don’t want to “miss the boat” and are fuelling these steady gains. It is worth noting that volumes aren’t particularly inspiring, according to some analysts. So, are you one of the many lucky ones who had enough capital left to start investing in early 2009 and are building, by luck or by crook, a ‘Portfolio’? How do we arrive at our 5-15+ holdings? Did we stumble across some decent ones, and then simply applied more funds to them in the same ratio that we began looking for more and more positive news to justify our decision? If we ask ourselves some home-truths, and are brutally honest with ourselves, we can arrive at portfolio that suits our appetite for risk, our personality, our ethics and our ambition. Think about these following questions or scenarios…and be honest with your answers! 1. You see a stock rising from 8.00am, and notice a lot of ‘hype’ on the chat forums; you trust the views of some of those on the boards but know of no reason for the increase. You have spare funds…what do you do? 2. Some of your stocks have fallen 15% despite consistent good news. Do you trust your own judgement or do you believe the ‘Market’ knows something you don’t and sell? 3. Your stock has risen 100%. Do you top slice half and leave some for the ‘next buyer’ or do you think that is weak and foolish? 4. The same stock rises another 25% and now you decide to sell some…do you think “I got away with that, but next time I will be more cautious” or “I knew I was right, so I will wait some more”? 5. You get ‘itchy fingers’ and have had a few stocks on your watch-list, but don’t want to sell any of your portfolio that you’ve persevered with since 2008/09. You could top-slice some of your profits and buy some, or you could ‘sit on your hands’ and stick by your hard work. Well, at 4.10pm today I didn’t ‘sit on my hands’ and I committed the sin of giving in to boredom!! I am honest enough to know that I don’t always practice what I preach, but perhaps underneath the cautious Riddler exterior is a little mischievous devil waiting to pop up once in a while. Please feel free to leave other ‘scenarios’ to add to the ones above.