This article is a website version of our weekly FREE Best Ideas Newsletter sent on 24.10.2023. Sign up here to get it in your inbox every Tuesday.

This week I want to talk to you about an essential element of managing your investments that often flies under the radar: regular portfolio check-ins.

Just like with health checkups, consistently reviewing your portfolio can shield you from substantial losses and underperforming investments in the long term.

It's common to get stuck in the quagmire of holding onto underperforming investments, hoping they'll rebound on their own. Keep in mind that for all of us, the discomfort of acknowledging a loss outweighs the satisfaction we derive from a gain.

Sharp Declines vs. Gradual Leaky Investments

The predicament here lies in how we handle investments that are gradually deteriorating or seem stagnant.

I'm not referring to rapid price plunges, which are identified and addressed by your trailing stop losssystem. Remember that? I hope you have it in place and act upon it! Especially in the current market.

I'm talking about investments that may have experienced a slight decline (without hitting a trailing stop loss) but seem to be going nowhere significant. If left in your portfolio over time, they dramatically underperform the market and become a true drag on your overall performance.

How to Address Gradual Leaky Investments

Allow me to demonstrate this with an illustration:

On April 4, 2023, the small cap Japanese IT company Vinx Corp. was recommended in the Quant Value newsletter. It has been consistent in achieving sales growth of approximately 6% per year over the past five years. It is significantly undervalued, trading at approximately 10 times earnings, offering a 3.6% dividend, and holding net cash equivalent to 34% of its market value.

As you can see, it's an intriguing investment.

The issue is that the stock price has declined by about 10% compared to the 11% growth of the Japanese market during the same period. Thus, an underperformance of around 20%, despite good results.

I agree that six months is too short a time to deem Vinx as a gradual leaking investment, but its underperformance is undoubtedly atypical.

Leak Detection Process

In the newsletter (and in my portfolio), we leverage a yearly review process to purge underperforming investments.

As you may recall, the newsletter utilizes quality, value, and momentum ratios to curate ideas (you can see exactly how we curate ideas here).

If a company like Vinx shows minimal movement and its performance remains largely consistent, the quality and value ratios stay unchanged, but because the price remains stagnant, momentum worsens. This results in the stock being divested. Similarly, if quality or valuation deteriorate, the company will also be divested.

Therefore, through this method, the portfolio consistently sheds underperforming stocks.

You might want to consider implementing a similar procedure in your portfolio to eliminate gradually leaking underperforming companies with no significant progression.

Quant Value Newsletter Update

The North American ideas notably performed the poorest (by far) last week.

European ideas also experienced a slight descent, but surprisingly, Asia, especially Japan (where most of the ideas are situated), have been quite resilient, even advancing.

Despite the decline in most markets last week, newsletter subscribers still maintain the following significant gains:

• North America +8% (Primarily due to Celestica Inc. +140.7%)
• Europe +5%
• Asia +21%
• Crash portfolio (2022) +26%

If these Quality, Value, and Momentum small cap ideas pique your interest, you can find more details here: The Quant Value Newsletter: Your Guide to Uncovering Europe, Asia, and North America's Hidden Treasures!

Shareholder Yield Letter Update

Since May, when we initiated the 23 suggestions, an average dividend of 1.3% has already been disbursed, and we've earned an average return of 2.2% despite the market pullback last week.

The top performer last week, soaring +12.4%, was Whitehaven Coal Limited, in Australia.

If high Shareholder Yield large cap ideas align with the kind of companies you wish to invest in, you can find more information here: The Shareholder Yield Letter: Invest big, win bigger with our market-beating large-cap strategy!

Your analyst dedicated to keeping your portfolio free of leaks

PS I know the markets are still uncertain, BUT have you begun formulating your buy list yet? If not, why not sign up today and commence now.

PPS It's so simple to forget and procrastinate; why don’t you sign up right now?

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Quant value newsletter 13-year performance to June 2023