Investors: It's Time for Your Midyear Portfolio Checkup

The art of investing is complicated, and often, you'll hear advice that seems contradictory. Buy and hold for the long term. Add to your winners. But also, don't let one stock become too much of your portfolio, and keep your asset allocation in balance. Be ready to take advantage of share-price pullbacks -- but don't leave too much cash idle on the sidelines. So how are you doing on all those fronts?

Given that we're now halfway though the year, MarketFoolery host Chris Hill has invited senior analyst Ron Gross onto the podcast for a segment about how to conduct your semiannual portfolio review. The duo also offer some thoughts for investors to consider as they take stock of their holdings.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on July 1, 2019.

Chris Hill: I wanted to get you in here because this really seems like a good natural break for any investor. We're at the halfway point of 2019. We're going to dip into the Fool mailbag because we got some great questions. But I am curious, this does seem like a good time for any investor to take a step back and say, "OK, it's the midway point. How am I doing?" Almost, to the extent it's possible, look at your portfolio with a fresh set of eyes.

Ron Gross: I like to do that two times a year. Now, because I'm an investing nerd, I do it daily. But I don't recommend that to the average person. But, two times a year is a really nice time. You can step back, take a look at your portfolio. You just need to see a few things. Sometimes, for example, cash can have accumulated. For example, I put a piece of my 401(k) into cash every month, and then I deploy it. But sometimes I forget, and the cash can build up. You don't want cash sitting idle unless that's a strategy that you're particularly pursuing. You want to keep an eye on your cash balance. You want to see if any positions have become oversized. First of all, it's a good problem to have. It probably means something is skyrocketing to the moon and it's just killing it. But you may be unhappy with how big that has become as part of your portfolio, the allocation size. And perhaps it's time to pare back.

A third thing is, perhaps you've been hanging on to a loser a little bit too long in the hopes that it would come back. Hope is a bad strategy when it comes to investing. You have to have a good reason, a good rationale. We always suggest writing down your investment thesis. In the case of a loser that you're really unhappy with, it's always good to go back and revisit your investment thesis if you have written it down.

Those three things. Maybe a company has become too large, maybe a company is not turning around as hoped, or maybe cash is accumulating. Two times a year, perfect.

Hill: Two of those things, I think, tie nicely into something we talk about from time to time, which is having a watch list. It's great to have a portfolio diversified with a bunch of stocks, but you also want to have a few stocks that are on a watch list so that if the cash balance builds up, or you do look at something and say, "You know what? I've looked back at why I bought this company. The thesis is broken. I'm going to get rid of this," maybe you time the sale, if it's at a loss, you time it to be advantageous from a tax position. But yeah, that's really why you want to have a watch list.

Gross: I love that idea, for sure! And don't take your watch list for granted. If you put a company on your watch list a year, two years ago, don't just assume nothing has changed. Give it a once-over twice to make sure that you still like that company and your thesis, whatever it is, still holds.

I always have a watch list. I'm always hoping to buy that next thing and having enough cash to buy that next stock, or, as you said, maybe selling something and replacing it with something better. The idea being, you always want to have your favorite stocks in your portfolio at any given time. This is the perfect time to make sure that's the case.

Hill: What is the first number you look at when you're looking at a company? Let's put aside this stock price. You can't help but see that number when you type in a ticker. For me, it's the market cap. That is the first thing I look at, because one of the ways I think about investing for the long haul is, what is the market cap today, what do I think it can be, particularly relative to competition. So, for me, it's market cap. What is it for you?

Gross: Market cap is definitely top few things. I can look at a glance of a tear sheet and look at a few things like, boom, right? Is the company profitable? Is there net income? Even more importantly, I'll look at a cash flow metric like EBITDA. Are they producing cash flow? What's the market cap? What size of a company are we talking about here? So, perhaps what's the revenue number look like? Those three things right there can tell you a lot about a company.

Hill: Before we get into the mailbag, looking ahead to the second half of the year, is there anything in particular you're going to be watching -- whether it's an industry, a particular company? Anything?

Gross: This may not be satisfying to many listeners because it gets a little bit in the economic weeds, but macro is what I'll be looking at, for the second half of this year, specifically interest rates and GDP or economic growth. That's going to tell me a lot about what I need to know about individual companies and how their growth rates are looking, and if, God forbid, we're going to fall back into a recession, which does happen. Sometime, we will. But, how's that all looking? Alongside that, how's the trade war situation shaping up? Six months from now, are we going to look back and say, "Wow, this has been a real thing!" or will we say, "That was just a blip, and it's gone"? So, mostly macro things for me.