I modified my pie slices today. Here is the reason why I decided to make changes.

Too much diversification can be costly

While having diversified portfolio is good, you could be losing better growth opportunity by trying to hold too many stocks. As I mentioned here, you don’t need too many stocks in your portfolio. After a certain number of stocks, standard deviation for risk is marginal. The reality is that quality is better than quantity.

I had stocks that I didn’t know well

When I was building my pie, I did not do it from scratch. I used Joseph Carlson‘s portfolio simply because I liked how he organized his pies and I didn’t feel like starting from scratch. I copied his pies and made changes to it. After all, i had a few companies that I did not know too well even though fundamentals looked good.

His portfolio focuses on dividend growth and cash flow generation. I agree that he has good selection of stocks if you goal is to have steady dividend income. My focus is different. I am more interested in long term growth. My strategy is to hold companies that are leading the industry.

Portfolio Simplified

I got rid of stocks in Telecom, Basic Materials, and Utilities. I have also sold a few bank stocks and industrial stocks. Those stocks I sold are perfectly good stocks in my opinion but in my opinion, they were not growth stocks. Below is the detail. One thing I noticed was that the selling triggered buy activities but everything was automatic and I did not have control over which stock I wanted to purchase.

While I was adjusting my pie and removing slices, I found some drawbacks of M1 Finance. I will write of about it in another post but simply put, there was no easy way to just stop buying new shares but simply hold stocks I had. Removing whole pie will result in selling those stocks in the pie! Sure, you can create another pie and try to match the same percentage to offset the sell, it is not always that easy. Maybe it is how M1 wants their users to manage their investments since they are more geared toward long term investing than trading. Still, I hope they had more flexibility.

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