Have You Weighed Your Portfolio Weights Carefully?

It is crucial that investors have a strategic perspective when it comes to equity investing. Portfolio weighting strategy is often ignored by a majority of investors in their initial investment strategy. Yogesh Supekar & Tanay Loya bring forth the huge benefits of focusing on portfolio weights of individual stocks for beating the markets.

- Yogesh Supekar & Tanay Loya

Markets are at record highs globally and Indian equity markets are no exception. In spite of such a spectacular upmove in the stock prices, you will find that majority of the investors are not able to outperform the relevant benchmark index. Even for a professional fund manager, it is a tough challenge to outperform the benchmark index consistently over a long period of time. The fact that almost 58 per cent of large-cap oriented mutual fund schemes have not been able to outperform their benchmark indices when we consider a ten-year period speaks volumes on the chances of beating the markets.

Why are investors not able to outperform even in a bull market phase that we are in currently? What determines portfolio performance? Is stock selection and market timing the ultimate mantra for beating the markets? Or is there something more to ‘portfolio outperformance’ than simply identifying stocks and timing the market right? Well, we have observed that investors tend to focus only on certain aspects of portfolio management and ignore some of the most essential aspects over time.

To understand what determines performance of a portfolio, one must simply focus on the basics of portfolio management and get every aspect of portfolio management correct. This way the odds of beating the market increases manifold. There are very many investors who do not even adopt a portfolio approach in equity markets and are prone to participate in markets randomly.

Our observation after interacting with lakhs of investors over the past decades suggests that investors err on portfolio construction and majority of the investors do not allow their investments to grow. In other words, majority of the investors take a short-term approach towards equity investments and this is at the root of a big chunk of the underperformance.