Why and How to Maintain a High-Quality Stock Portfolio to Reach Your Return Goals

For stock investors, portfolio stock tracking is arguably the most important driver of long-term investing success. By consistently staying on top of their portfolio, investors can both identify underperforming assets and proceed to make timely adjustments to a company’s changing business prospects. A sound stock tracking approach positions investors to reach or even surpass their return objectives while minimizing unnecessary losses.

In this post, we cover the importance of a robust approach to stock tracking, how it can be implemented with Ziggma’s tools and how to optimize your portfolio when it’s time to act.

Hands-on stock tracking to minimize risk

Many investors make the mistake of leaving “bad apples” in their portfolios. This is bad news for their portfolio performance. One or several poorly performing stocks can set a portfolio back big time. Remember, if a stock drops by 20%, it has to go up by 25% to recoup the incurred loss. In light of this, investors must make sure to not loose money on individual holdings at best, or at least minimize any losses.

The psychology behind sticking with losing stocks

The psychological phenomenon of keeping bad stocks in a portfolio rather than selling them is known as the “disposition effect.” This bias leads investors to hold onto losing stocks in the hope that they will recover, while selling winning stocks too early to lock in gains. It stems from a reluctance to realize losses and a preference for avoiding the pain of admitting a bad investment decision.

Learnings from Nobel-Prize winner Daniel Kahnemann

Daniel Kahneman, a Nobel Prize-winning psychologist and one of the founders of behavioral economics, extensively researched the disposition effect as part of his his work on prospect theory.

Kahneman found that people are generally loss-averse, meaning they experience the pain of losses more intensely than the pleasure of gains of the same magnitude. This emotional bias explains why investors often hold onto bad stocks longer than they should: selling the stock would require them to acknowledge a loss, which they prefer to avoid.

Rather than making rational decisions based on the future potential of a stock, many investors base their decisions on their emotional attachment to the original purchase price. They would do considerably better by implementing a stock tracking process, for examply by closely monitoring the Ziggma Stock Score in the holdings table.

This behavior results in what is often referred to as mental accounting, where the current value of an asset is judged based on its purchase price rather than its current or future potential.

The benefit of a rules-based strategy to stock tracking

Kahneman’s work highlights the importance of recognizing and countering these cognitive biases to improve investment decision-making. Investors can greatly benefit from adopting objective, rule-based strategies to avoid emotional traps like the disposition effect. By relying on data and rational analysis rather than emotional impulses, investors can better align their portfolios with long-term return objectives.

For instance, as a Ziggma user, you can set a rule to not own stock whose Ziggma stock score drops below 50.

Move the odds in your favor with a top-rated portfolio

Whatever your return objectives, regardless of whether you set a specific target return or aim to beat an index, your chances of success are going to be substantially higher when you manage to maintain a high-quality stock portfolio at all times.  

Examples of high-scoring portfolios

An example of how high-quality portfolios can generate market-beating returns can be found in our model portfolios. Created at the start of the year, many of our model portfolios are showing stellar performance for their respective investment strategy. Here are some examples:

📈 Best small cap stocks: +31.6% year-to-date (+14% vs. S&P 500)

📈 Best of S&P 500: +44.1% year-to-date (+26.5% vs. S&P 500)

📈 Top 10 growth stocks in NASDAQ 100: +24.9% year-to-date (+9.35% vs. NASDAQ)

Portfolio stock tracking tools

Portfolio tracking tools streamline the investment process. Used extensively by professional investors, many of these tools are straightforward and very accessible, even to less experienced investors. If properly applied, they tend to improve financial outcomes.

In Ziggma, investors can track their overall portfolio quality in a single glance by checking the dashboard. In the example shown below, the portfolio exhibits a very solid score of 94. Over time, investors can even track the evolution of their overall portfolio score. This is a particularly valuable feedback tool to ensure that the portfolio is staying on track.

Moreover, all stock holdings are shown with their Ziggma stock score in the portfolio view. When you initially link your account, checking your stock scores should definitely be one of your first moves. But also over time, investors do well to regularly check this column to make sure their stocks maintain solid scores. In this portfolio, the bad apple is Peloton with a score of just 18. The stock clearly pulled the portfolio down as the stock lost 17% over the past year. A look at Peloton’s stock scorecard shows, the company scores very poorly on profitability, valuation, and financial health while revenue fails to grow.

Going from stock tracking to portfolio optimization

So what can you do when you uncover areas of improvement for your portfolio? Here are two options.

Option 1: Finding a better alternative within a given industry.

Let’s assume you were concerned about a specific stock’s prospects within your portfolio, because it’s stock score has dropped to a worryingly low level, 18 in Peloton’s case. No need to panic. Better options are just a click away. All you need to do is click on the problem stock in the holdings table. Then check the stock scorecard to view the top-ranking stocks in the same industry.

The top stock list is an excellent shortlist of better options. That said, please go through your own research checks before taking an investment decision to ensure that the investment fits with your portfolio and investment approach.

Option 2: Identifying high potential stocks in the screener

Your second option consists of finding high-potential stocks in the screener. One highly effective way to identify great prospects quickly is by using the sub-scores for valuation, growth, profitability and financial health. As this example shows, using these filters can get you a shortlist of stocks in a matter of seconds.

Stock tracking maximizes your chances of investing success

In conclusion, maintaining close oversight of your stock portfolio is essential for achieving long-term financial success. Regular tracking allows investors to quickly identify underperforming stocks and swiftly adjust to market shifts, reducing the risk of significant losses. By staying proactive and informed, investors are better positioned to capitalize on growth opportunities and safeguard their returns. Ultimately, disciplined stock tracking is key to optimizing portfolio performance and meeting or exceeding return objectives no matter the prevailing market environment.

Important Notice

This article is not investment advice. We cannot predict whether these stocks will go up or down.

We believe the information contained in this text to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice. Please consider your full financial situation prior to making an investment decision.