I had recently invested into one of WeekendInvesting’s Smallcases. Why do underperforming stocks enter the portfolio ? Sometimes, even a profitable stock becomes a loss making one before finally making it’s way out of the portfolio in a rebalance.

Any stock that enters either of our portfolios, goes through multiple filters that have been established.

In a 10 stock portfolio for example, all the stocks that enter the portfolio would surely have shown strong signs of trends or momentum in the recent past. Some may move higher and scale peaks while others may fizzle out and soon meet our exit criteria.

We will have multiple losers that exit the portfolio for smaller losses and few winners that book large gains which will not only compensate for the losses but also create alpha at the portfolio level.

The answer to your questions can be understood much better only after you spend adequate time with the product.

EXAMPLE

Let’s say we added stock X at Rs 50 in June 2020

– Stock X reaches a peak of Rs 2000 in June 2021

– Stock X exits the portfolio while at Rs 1700.

If you had entered the portfolio in June 2021, you may have only witnessed stock X’s fall from Rs 2000 to Rs 1700.

While stock X may have been an absolute loser for your portfolio, the same would have been a massive multibagger for others who invested in June 2020. The returns from a particular stock in a portfolio will be dependent on various factors like,

(a) Time of entry

(b) Fund addition – When you add funds to the portfolio through SIPs or lump sums, the average purchase price will change with every such addition and so will the net returns. Kindly refrain from comparisons in case you have added funds. Kindly assess the performance at a portfolio level using the XIRR Tool ( Video | Tool )

This is why we repeatedly ask our subscribers to spend at least a couple of years to understand the dynamics of the product better and then try to assess the performance. Anytime spent less than that may give you false signals.

If you have any further doubts or questions, please send an email to support@weekendinvesting.com