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Value Investing in Growth Companies: How To Spot High Growth Businesses and Generate 40% to 400% Investment Returns by Rusmin Ang, Victor Chng

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Chapter 9

Portfolio Management for Growth Companies

Understanding Your Portfolio

This chapter is about the allocation of capital for growth companies in your existing portfolio. Before we discuss how you can allocate your money to growth companies, we want to let you know that, although we attempt to generate a consistent return of more than 15 percent over a long period of time, you might not see such consistent returns year after year. In fact, your return might even be negative in some years.

For instance, if you bought a stock at $1, you might have realized a gain of 30 percent if the stock price had shot up to $1.30 a month later. Thereafter, the price might have dipped from $1.30 to $0.90, resulting in a return of −10 percent. Due to fluctuations in market prices, the return on your portfolio understandably varies. In the short term, market volatility is unpredictable. However, in the long run, the market should be more efficient, and you should be able to reap this return if you purchased a growth company at an undervalued price.

One of the most frequently asked questions when it comes to allocating capital to growth companies is “Should I place all my eggs into one basket and watch over it, or should I place my eggs in several different baskets to lower my risks?” Again, this is not a one-size-fits-all portfolio management strategy. The allocation has to be dependent on your risk appetite and age profile. Let’s go through them in more details.

Types of Diversification

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