How To Build A Portfolio - Key Dilemmas Resolved

Of all the wisdom that Warren Buffett and Charlie Munger share with the world, two stand out in particular for this cover story.

- Karthik Anand Vijay

These are:

Investing is simple, but not easy. - Warren Buffett

Take a simple idea and take it seriously. - Charlie Munger

The sheer simplicity of these words hides the difficulty of adhering to them. As an investor, you know what you need and what you have to do to ensure good long-term performance: pick quality companies for the long term. Yet, that very task is difficult to implement.

But your task doesn't stop at picking companies. You need to form a portfolio. Both selecting companies and building a portfolio are equally important. You cannot succeed with just one. And that brings a lot of challenges. How often have you given a thought to building a good portfolio? Most investors just think about picking companies. But it is the portfolio that drives your wealth.

To understand how to build a good portfolio, you need to spend time thinking about the nitty-gritty of it. You would come across many questions, such as:

• How many companies should you own in your portfolio?
• Should you pick growth over value?
• Should you stick to large caps or bet on smaller companies?
• How do you assign weights?
• When should you add a stock to your portfolio and when should you sell?

We have taken 10 such questions and we want you to think about them seriously. In fact, while reading, many more questions would spring up in your head. You would also find that there's no clear-cut answer to these questions. There have been successful investors with a variety of approaches. You need to think about what suits you. You could prefer to take more risks and go gung-ho overgrowth. Or you may want steady and durable companies.

Consider the following pages as a guide to help you make a decision. There is no order that you need to follow. Go straight to the section you want to know about or read the full story to get a comprehensive view of building your portfolio.