Detecting Portfolio Leaks: Your Key to Higher Returns 💰

Learn how to detect and eliminate underperforming investments with a systematic yearly review process. Enhance your investment strategy using quality, value, and momentum metrics.

This article is a website version of our weekly FREE Best Ideas Newsletter sent on 24.10.2023. Sign up here to get it in your inbox every Tuesday.


This week I want to ask you about a crucial aspect of managing your investments that often goes unnoticed: regular portfolio checkups.

Just like with health checkups, regularly reviewing your portfolio can save you from significant losses and underperforming investments in the long run.

As you know it's easy to fall into the trap of holding onto underperforming investments, hoping they'll turn around on their own. Remember for all of us the pain of realising a loss is larger than the pleasure we get from a gain.


Sharp falls vs slow leaking investments

The challenge here is what we do with investments that are slowly deteriorating or just seem stuck.

I am not talking about fast price drops which are identified and managed by your trailing stop loss system. Remember that? I hope you have it set up and act on it! Especially in the current market.

I am talking about investments that may have gone down a bit (not hitting a trailing stop loss) but never seem to go anywhere. If you leave them in in your portfolio over years, they substantially underperform the market and can be a real drag on your performance.


How to manage slow leaking investments

Let me illustrate this with an example:

On 4 April 2023 the small cap Japanese IT company Vinx Corp. was recommended in the Quant Value newsletter. It has been growing sales at about 6% per year over the past five years. It is nicely undervalued trading at about 10 times earnings, pays a 3.6% dividend and has net cash of 34% of its market value.

As you can see, an interesting investment.

The thing is the stock price has fallen about 10% compared to the Japanese market that is up 11% over the same time. So, around 20% underperformance, and this despite good results.

I agree that that six months is too fast to say if Vinx is a slow leaking investment, but its underperformance is unusual to say the least.


Leak detection process

In the newsletter (and in my portfolio) we use a yearly review process to get rid of underperforming investments.

As you may remember the newsletter uses a quality, value, and momentum ratios to select ideas (you can see exactly how we select ideas here). 

If a company like Vinx hardly moves and its results stay largely the same the quality and value ratios will remain the same but because the price has not moved momentum will get worse. This will lead to the stock being sold. Similarly, if quality or valuation got worse a company will also be sold.

So, because of this process, the portfolio gets rid of underperforming stocks all the time.


You may want to think of implementing a similar process in your portfolio to get rid of slow leaking underperforming companies going nowhere.


Quant Value newsletter update

The North American ideas performed the worst (by far) over the past week.

European ideas also fell a bit but surprisingly Asia especially Japan (where most of the ideas are) have been holding up very well, even increasing.


Despite the fall in most markets last week newsletter subscribers are still sitting on the following solid gains:

  • North America +8% (Mainly because of Celestica Inc. +140.7%)
  • Europe +5%
  • Asia +21%
  • Crash portfolio (2022) +26%


If these Quality, Value and Momentum small cap ideas sound interesting, you can get more information here: The Quant Value newsletter: Your Treasure Map to Europe, Asia, and North America's Hidden Gems!


Shareholder Yield Letter update

Since May when we started the 23 ideas have already paid an average dividend of 1.3% and am sitting on an average return of 2.2% after the pull back in the markets last week.

The best performer last week up +12.4% was Whitehaven Coal Limited, in Australia.

If high Shareholder Yield large cap ideas sound like the kind of companies you would like to buy you can find more information here: The Shareholder Yield Letter: Invest big, win bigger with our market beating large-cap strategy!


Your, helping you keep leaking investments out of your portfolio analyst


PS I know markets are still uncertain BUT have you already started building your buy list? If not, why not sign up today and start now.

PPS It is so easy to forget and put things off why don’t you sign up right now?


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Quant value newsletter 13-year performance to June 2023