How to copy the LongRunPlan portfolio

One of the most common questions I get asked is “How to copy your portfolio?”. The more detailed answer can be found here, but the short version of it is: Open an investment account with a broker (I recommend a leading discount broker such as Interactive Brokers), then choose 15 to 20 stocks from the list of recommended stocks (prefer stocks that were bought more recently) and buy them with an equal amount of money. Now, hold on to them patiently, sell a stock only when it comes off my portfolio, and replace it with a new stock from the portfolio.

Should you buy all the shares at once?

It is impossible to time the optimal entry point into an investment, so it makes no difference if you buy all the stocks at once or gradually. However, especially if you are going to invest a large amount of money in each share, it is perhaps wise to divide the money into 3-4 portions, and once a month, buy a portion of all the shares in an equal amount. Continue doing that for several months until you’re fully invested. This will average your entry price to the market.

Should you buy a stock that its price went down sharply or climbed up significantly?

Naturally, you may encounter a psychological difficulty in buying stocks when prices have gone up or down significantly since they entered into the portfolio. However, it is important to understand that this is a misleading psychological barrier, and the rate of increase or decline of the share since its purchase has no meaning to the future return it will yield. As evidence, there were already quite a few stocks in the portfolio that went up by hundreds of percentages over the course of several years, so that whoever would have avoided buying them after a 100% or even a 200% increase, would have missed the rest of their rallies. Thus, ignore the “Return” column in the portfolio page and don’t try to time the entry point (and in case you wonder – Technical Analysis tricks won’t help you in that…).

Should you immediately buy or sell a stock when Buy/Sell signal is received?

I buy a stock when it’s cheap and sell when it reaches its fair value, but as you already know, I can’t time the market, so a stock can go lower after I buy or higher after I sell. Thus, you don’t have to place your orders immediately after you get the signal, but no later than the next few days after my buy/sell takes place (otherwise, you’ll be on your own with this stock).

Should you rebalance the portfolio and how frequent?

Some stocks will go up and some will go down, thus the portfolio positions will be unequal. Thus, once a year (or twice a year if you prefer, but not more frequent than that to keep commissions low) it is wise to rebalance the portfolio. This means selling units from stocks that went up and buy additional units from stocks that went down, so each position will again be with an equal amount of money.

What to do with the un-invested cash?

Usually, we’ll be fully invested in stocks. However, if there are less than 15 stocks in the portfolio and you’re not fully invested, keep the rest of your funds in cash, short-term deposits or short-term treasuries to keep liquidity for new stocks.

What should you do with dividends?

We all like dividends and some of the companies in the portfolio will distribute dividends over the period of their holding. Usually, it is wise to use the cash dividends to buy additional units from the stock that distributed it.