@lecorb introduced the idea a few days back of actually reading your own portfolio and provided some structure and guidance for doing it. @etf.go has since walked through his portfolio as well (worth a read!). To be frank, I’ve never met either of these guys in person. From what I’ve gathered we’re around similar ages, but we’re on somewhat different paths. They’re both retired. I don’t really envision myself retiring. My career has evolved through frontline clinical work and leadership within a health authority, both of which I’ve genuinely enjoyed. Work is pretty embedded in who I am. It’s part of the package alongside family, athletics, coaching, investing and leisure. Maybe that changes someday. Life changes plans. But it highlights something important about investing: the portfolio has to fit the person, not the other way around. A couple people can be similar ages, understand investing equally well and still build very different portfolios because they’re solving different problems. I’ve learned a tremendous amount from both @lecorb & @etf.go. They’ve provided immense value to the Blossom community and have made me think more carefully about my own process. So this is my attempt at reading my own portfolio. And honestly, I think it’s an exceptional exercise even if the only thing you learn is: Does the portfolio I actually own line up with my risk tolerance, investing philosophy and the life I’m trying to live? Because it’s easy to accumulate investments over time and eventually end up with a collection of holdings rather than an actual portfolio. So I turned the exercise on mine. At first glance, around 20 positions mixing factor ETFs and individual companies might look scattered. But zoom out and I really see two parts: ETF Ladder + Conviction Companies. Despite looking different, the philosophy behind both is remarkably similar. I want profitable businesses, strong balance sheets, good capital allocation and valuations that make sense. The difference is how I get there. On one side, I trust systematic factor investing to do the screening. On the other, I do the work myself and concentrate when I think the opportunity warrants it. What am I trying to accomplish? I’m still accumulating across both registered and non-registered accounts, and I’m not building toward a particular retirement date. The objective is long term compounding without making the outcome overly dependent on my ability to pick stocks, predict markets or get the macro right. But I’m also not trying to simply own everything. I’m a factor investor first, and that forms the foundation of the portfolio. The ETF Ladder (60%) I don’t really think of my ETFs as “owning the market.” I’m deliberately tilting toward characteristics I actually want to own. Profitability is the thread running through the ladder. Then size and value. I want profitable companies across different market cap sizes, with additional emphasis on value as I move into smaller companies. Small companies aren’t automatically good investments because they’re small. Cheap companies aren’t automatically good investments because they’re cheap. And I don’t want struggling businesses simply to capture a theoretical factor premium. Companies need to be screened. That’s why I trust managers like Avantis and Dimensional to do much of that work for me. $CAGE, $DFAX, $CASV and $DFUS may look like separate ETFs, but I see them as different rungs of the same philosophy. Broad diversification is a benefit, but diversification isn’t the thesis. The thesis is profitability, size and value implemented systematically across thousands of companies. Small cap is where I’m particularly selective. If I’m accepting the additional risks that come with smaller companies, I want value and profitability working alongside size. I have little interest in owning small, expensive, unprofitable companies simply because an index tells me they’re part of “the market.” That’s also why I’m not completely comfortable relying on market cap weighting for the foundation of my portfolio. As a company’s market value grows, so does its weight. That can work extremely well, but it can also leave you increasingly exposed to companies carrying very rich valuations simply because they’ve become very large. I’m not anti market-cap. I just prefer a different set of rules. I want companies screened for characteristics I believe matter to long term expected returns, and I trust Avantis and Dimensional to implement that process more consistently across thousands of businesses than I ever could. I’m not choosing the individual companies. But I’m deliberately choosing what characteristics I want the companies I own to have. Conviction Companies (40%) This is where the implementation changes. Instead of outsourcing selection, I’m willing to do the work myself and concentrate when business quality, financial strength, valuation and long-term opportunity justify it. Conviction doesn’t mean liking a company. Every position has to earn its place through some combination of earnings quality, balance sheet strength, competitive advantage, capital allocation, free cash flow and valuation. I roughly see them as: Quality Compounders (17%) $MSFT, $GOOG, $MA, $TJX Durable moats, pricing power and strong economics. Generally the businesses I’m happy to let compound. Growth / Infrastructure Tech (8–9%) $ANET, $AMAT Networking and semiconductor infrastructure. Higher potential growth and volatility, so sizing matters. Defensive Infrastructure & Healthcare (10%) $FTS, $WCN, $MCK, $PBA Utilities, waste, healthcare distribution and midstream. Recurring demand and cash flows that don’t require everything economically to go right. Travel & Services (4%) $BKNG, $WSP Long term structural opportunities rather than short term macro trades. Resources / Precious Metals (1%) $WPM, $CCO Small and deliberate. Diversifiers rather than return drivers. Two methods. One philosophy. This might be the biggest thing I discovered doing the exercise. The ETF and individual company sides aren’t opposing strategies. The philosophy doesn’t change. The method of implementation does. With ETFs: I know the characteristics I want, but I trust a disciplined systematic process to find and weight thousands of companies displaying them. With individual stocks: I’ve done enough work on this particular business that I’m willing to make the selection myself and take concentrated risk. One is systematic conviction. The other is individual conviction. Both ultimately ask similar questions: Is the business profitable? Is the balance sheet sound? Does it allocate capital well? What am I paying for those economics? What return am I expecting for the risk? Risk: I don’t define risk simply as volatility. A stock falling 20% isn’t necessarily a problem if the underlying business and expected future return haven’t deteriorated. I’m more concerned about permanent impairment of capital, excessive concentration, weak balance sheets, paying valuations that require everything to go right, or constructing a portfolio dependent on one particular economic outcome. The ETF ladder diversifies company specific risk. Position sizing helps control the rest. And the combination lets me have conviction without requiring every conviction to be right. Conviction isn’t permanent: Owning individual companies means accepting that I can be wrong. A conviction position doesn’t get lifetime membership because I once liked the thesis. If the business deteriorates, capital allocation changes, the balance sheet weakens, the thesis breaks or valuation makes future returns difficult to justify, I’m willing to move on. Sometimes nothing is wrong with the company. The price simply stops making sense. A great business and a great investment aren’t always the same thing. Rebalancing: If a conviction company becomes too large, valuation gets stretched or I find a better opportunity, trimming can fund another idea or simply go back into the ETF ladder. Likewise, when markets fall, I don’t necessarily need to decide which individual company will recover fastest. I can add to the systematic side and let the factor process work. Rebalancing isn’t about constantly tinkering. But I will dial down risk or vice versa from time to time. It’s about preventing the risk attached to one idea from quietly becoming much larger than I intended. Does the portfolio actually look like me? That’s ultimately what I took from this exercise. I’m a factor investor first, but I love researching individual businesses. I believe deeply in diversification, but I’m comfortable with concentration when I’ve done the work. I want growth, but I care about the quality and price of the growth I’m buying. I accept volatility, but I don’t want unnecessary risk. And investing is part of my life. It isn’t the entire purpose of it. I don’t need a portfolio designed around escaping work as quickly as possible. I want one that compounds alongside a career, family, athletics, coaching, leisure and whatever else the next few decades bring. When I read the portfolio through that lens, the holdings don’t feel scattered at all. Maybe that’s the real value of this exercise. Don’t just ask: “What do I own?” Ask: “Why do I own it, what job is it doing, and does the portfolio I’ve built actually reflect the investor, and person I think I am?” Thanks to @lecorb and @etf.go for getting me thinking about this and for everything they’ve contributed here. I’d love to see more people do the same. As always, this is my process, not a template. Take what’s useful and leave the rest.
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12 Comments
Gordona Powers@Sheilaaaa · 22d
Amazing post! These flavors of posts are some of my favourite. Getting insight into how you think about investing and the resulting portfolio produced from it. I just came off of a week long camping mostly off grid... catching up on Blossom and also read @etf.go's and @lecorb posts. Thought provoking stuff. Im personally still not the biggest fan of factors still (nothing against it). But it just seems so inherently flawed in so many ways. Whereas for you, you don't see the appeal in market cap for your reasons. Your investment journey has led you to that belief. Any approach has flaws, but market cap investing to me still feels like the best strategy to passively capture the future returns. Where nobody actually knows the future. We could discourse for days on it, but in particular profitability as a factor is one i especially have issue with. Similar idea for heavy active management. Even with vast resources, like an entire team of super smart analysts workint around the clock, it seems like unwinnable game long term. I still do the stock picking very similar to your style. But I do think this will continue to change over time to ETFs more and more. Keep these posts coming! You are one of the best for posting about the factor style of investing and similar topics.
Tim Ma@Schmid · 22dEdited
Great approach and great perspective making your portfolio fit your life and views. 👏 I agree on the value that Factors can bring and as people know there will be times of over/under performance but psychologically they let us find a much better match to our views. The reality is that MCap will always reflect the unoriginal masses that just follow the heard into the biggest/growing companies. It works most of the time (so hard to ignore) but just not all of the time. So it’s nice to see more and more people embrace Factors (either as core or complement). While most of blossom is trading nickels between themselves I’m much more looking forward to seeing how real portfolios like yours/others evolve over time. 👍
Willi B@Nicoleaaaaaaaaa · 22d
Really enjoyed this Ian... Thank you! Generating some thoughts about my own portfolio and where I'm at in my personal journey. Cheers...
Debr @Robinso · 22d
Really like this perspective. The portfolio has to fit the person, not the other way around. The question “Why do I own this?” is so much more valuable than constantly asking “What should I buy next?” Great reminder that a portfolio should be intentional, not just a collection of investments.
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