Bread and Butter Portfolio: Streamlining Returns Time Conscious Investors
The “Bread and Butter Portfolio” serves three distinct but complementary objectives:
1. Time Efficiency: The portfolio is specifically designed for individuals who either cannot afford to spend all their time monitoring the stock market or prefer not to. The investment strategy is built around straightforward, time-tested rules that streamline the investment process, making it less time-consuming for busy individuals who still want to participate in the market.
2. Low-Risk Investing: The portfolio caters to investors with a low risk tolerance. It intentionally avoids high-risk positions, focusing instead on large-cap stocks, typically more established and stable companies with a history of steady performance. Such stocks generally have a lower risk profile compared to smaller-cap, more volatile stocks.
3. Strict Risk Management: This portfolio’s investment rules are more stringent than those of other portfolios under management. This ensures that the risk-to-reward ratios stay within a conservative range. By only engaging with investments that meet these strict criteria, the portfolio maintains a disciplined approach to risk, aiming to protect the investor’s capital while still seeking to generate returns.
This portfolio is, therefore, ideal for investors looking for a “set it and forget it” approach that allows them to benefit from the equity markets without the stress and time commitment usually associated with active trading, all the while keeping a close eye on risk management.
We categorize our investment recommendations into two levels of risk: normal (marked in green) and medium (shown in navy blue). When we say an investment is “full” or “complete,” it means we have invested the full amount of money allocated to this stock or ETF. We always divide the money, allocating between 3 to 5 lots and allocating them one at a time.
Our profit targets are as follows:
The portfolio’s profit-taking strategy is meticulously crafted to balance risk and reward, tailored to diverse investor profiles. Here’s a breakdown:
- Initial Profit Target: Sell one-third of the position at a 25% profit, securing gains and reducing risk on the remaining investment. However, traders with lower-risk Appetites should concentrate on exiting their entire position within the 20 to 25% range. This range is often considered the sweet spot, as many stocks tend to retract from this level before advancing further. The term ‘low risk’ refers to investors with a minimal risk appetite.
- Second Profit Target: Sell another third at a 35% profit, maximizing success while maintaining the potential for further growth.
- Final Third for Conservative Investors: Sell the last third at a 35% profit or slightly more to ensure realized gains in a favourable investment.
- Final Third for Aggressive Investors: Hold the last third for higher, flexible profit targets based on risk tolerance and market conditions.
- Risk Management: An automatic stop at the buy-in price after the sale of the first lot protects against losses and provides a safety net for the remaining shares.
This tiered approach allows for gains realization and potential growth, coupled with an automatic stop to protect the initial investment. It’s a disciplined strategy emphasizing patience and rule adherence, ideal for hands-off investors maintaining control over risk exposure.
once again, setting profit targets between 20 and 25% is advisable for discerning investors with a conservative bent. These targets have been meticulously calibrated to offer an optimal balance between potential returns and risk management, ensuring that your investment strategy remains prudent and aligned with a risk-averse philosophy.
The points at which we choose to buy into an investment are set with our preference for lower risk than our other investment strategies. We keep a close eye on these and adjust when necessary. Our approach is to buy in at an advantageous price without rushing after stocks, aiming to get in early and leave after we’ve made the expected gains.
In uncertain times, like the ones we saw in 2023, how we choose to exit an investment may change. And if we notice that the balance of risk and reward does not favour the cautious investor, we will alter our approach accordingly. The focus here is on capital preservation and appreciation without taking on undue risk.
Conclusion
Launched 15 months ago, our investment portfolio truly began to flourish in late May of last year when our specific criteria were met. Since then, the portfolio has demonstrated significant success until February 2024, with approximately 90% of the investments yielding profits.
This success can be attributed to a disciplined profit-taking strategy that involves selling in thirds, thereby mitigating risk as investments appreciate. To further ensure capital protection, automatic stop-loss orders are set at the buy-in price after the initial sale, which safeguards against market volatility.
The structured profit targets, ranging from 20 to 25%, have been particularly beneficial for conservative investors. They strike the right balance between growth and capital preservation and allow for participation in market gains while managing risk effectively.
The key to this portfolio’s strategy lies in its simplicity and adherence to clear, well-defined rules that cater to various investor profiles. Good-Til-Cancelled (GTC) limit orders facilitate automatic sales at predetermined profit levels, locking gains for those preferring a conservative approach. Simultaneously, the portfolio can accommodate those seeking larger returns and willing to embrace higher risks by setting more ambitious profit targets.
Overall, this strategy offers a robust framework that aligns with conservative investment principles and can be adapted to suit individual risk tolerances, ensuring investors can navigate the market with confidence and discipline.
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