Five-step tune-up for my portfolio after earnings season

FinHabits: How I am adjusting my holdings based on new information

Ok, so Q4 earnings season is done - I don't really care about whoever is left to report. The US Fed is on a hawkish path. War continues in Eastern Europe with no end in sight. Inflation continues to stay high, thanks to elevated energy prices, commodities speculation and new sanctions-driven supply chain disruptions. The market is walking on egg shells - can we trust this recent rally?

My portfolio has stocks that I love and some craters...ahem...stocks that I don’t like that much. I am retired and don't have an abundance of cash on the sidelines to buy stocks that seem cheap.

What moves should I make now to improve my ROI through the end of 2022?

Here is what I am doing with my portfolio:

1. I am going back to the themes that I short-listed at the beginning of the year and evaluating if I still like them. Have any new themes emerged over the past three months? I want to invest in 5-6 themes max because this allows me to channel the due diligence on my holdings without missing something important. I then decide how to size each theme in my portfolio. I could do a straight 20% allocation for each of the 5 themes I pick. But then I might give up extra gains in a stronger sector such as cybersecurity versus a pressured sector like ecommerce.

2. I group my current stocks against my favorite themes in #1 above. Any stocks that do not fall under one of these themes are put on a parking lot for later consideration.

3. I evaluate each of my stocks using these metrics from their Q4 and previous earnings reports. I am looking at trends (positive or negative), growth, competition, market dynamics, health of the business and future roadmap. Each of my holdings gets a more detailed financial map and write-up like this one for Datadog. Putting things down on paper, such as an elevator pitch, conviction statement and investing plan, helps me stick to my method when the market goes south as we have seen in the past 3 months. It helps reduce the stress and ensures that I don't make impulsive moves that I have not thought through.

4. I am also updating my scores for these stocks using my preferred scoring approach. This allows me to objectively and quantifiably compare each stock within my preferred themes. I can then decide which stock is the best one to own and whether to discard or trim the others. e.g. In the semiconductor theme, should I own AMD or NVDA?

   Sometimes I have to pick only one stock within a theme and doing a comparative analysis helps me decide the winner. e.g. Should I own CRWD or S for the cybersecurity theme?

5. If I still have more than one favorite stock in a theme, I decide how to size each position relative to others within the theme. e.g. Should I put equal money in AMD and NVDA or should my NVDA position be bigger because it scored higher? This is usually a judgement call based on my level of conviction in each stock.

I developed this 5-step process when I was cleaning up my portfolio last year, culling it from about 56 positions down to 14 holdings. This method applies again at the end of earnings season and I will repeat it each quarter, using the new data from the most recent earnings reports.

Investing is like gardening and our portfolios need constant attention - water, nutrients, weeding and protection.