How to Buy and When to Sell in Your Stocks Portfolio

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Key #6 To Building a Successful Stocks Portfolio: How to Buy and When to Sell

Dr. Thomas K. Carr

We have come to the end of our process for building a winning stocks portfolio.  You now have a full course on how to find the best possible long-term investments.  This is the very same research system I use to find the best investments for my IXTHYS Letter and The IXTHYS Portfolio (

By the time you get to this stage, you should have one or two companies that have passed through your various filters.  Any company that comes close but for whatever reason is not quite there yet – perhaps its HPLM is too high, or it has a negative earnings report it needs to work out – put on a watch list for monitoring.  As for any passing candidates, you know that they are companies with a strong track record of organically growing earnings and sales; they are currently undervalued; they have a strong mission statement and cultural values you agree with; they are technically poised to move out from a bullish base; they are well liked by the analysts; and they have supportive items in their newsfeeds.  With all that going for what companies now remain on your list, all that is left to do is to buy some shares and start building your stocks portfolio.

Now, it might be possible that no company has made it through your gauntlet of critical research.  Know this: it is perfectly fine, even after devoting hours to research, to having nothing on your “buy now” list.  Get out of the trader’s mindset that you always need to be working your funds in and out each day.  You don’t.  Cash is seed, and seed can remain vital a long time without being planted.  What you need is good soil, and if you don’t have any this week, try again next week.  In some markets, you might go a few months before finding anything investment-grade.  That’s okay.  This is a marathon, not a sprint.

How (and How Much) to Buy

stocks portfolioLet’s assume, however, that your research process has highlighted a stock that you want to buy for your long-term stocks portfolio.  Your task now is to buy shares at the next market open.  To do this, simply put in a “market on open” order (sometimes listed as “OPG”), limiting either the number of shares you want to buy, or the amount of capital you want to invest, and hit “transmit.”  Once you’re in, you’re in.  All the hard work is behind you.

As far as deciding how much money to put into each position, I recommend maxing your number of concurrent positions at 18.  Why 18?  First, I know from experience that anything more than that and I cannot adequately keep track of the companies I’m investing in.  This is important because you need to keep tabs on what you’ve bought so you know when it is best to close out the position.  Second, I know from experience too that any fewer than 18 causes undue volatility in my stocks portfolio.  Yes, you may need to begin your investing with fewer than 18 positions because you have less than $18,000 with which to open your first investing account.  That’s okay.  It’s a necessary inconvenience.  But your goal is to get fully invested with 18 stock and cash (if needed) positions in your stocks portfolio.

My experience with the number 18 is actually backed up by evidence.  In their 2011 book, Investment Analysis and Portfolio Management, Frank Reilly and Keith Brown report that “about 90% of the maximum benefit of diversification” is derived from equally weighted stocks portfolio’s holding 18 stocks.  Beyond that number, the benefit begins to diminish.

So with that in mind, when I want to buy a new stock I take my current cash account’s net asset value (i.e., the total of all cash, dividends, interest and current market value of the stocks I own) and divide it by 18.  I then invest that amount into the new stock I’m buying.  Interactive Brokers makes this step simple.  I simply type in the amount of market value I want to purchase, and the trading platform automatically calculates how many shares I’ll be buying at the open.

Once you have bought your first stock, you are an investor in the underlying company.  Of course, your relationship to that company has only begun.  While the company no longer needs to “prove itself” to you in terms of its growth, valuation, mission and momentum, it still needs to uphold its side of the relationship.  Remember, by placing your seed capital into the company’s coffers, you have “clothed yourself” in the culture of its business and its mission in the world.  You have married a part of your destiny to its destiny.  From here on, what the company does matters to your stocks portfolio and you.

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