Why didn’t you include XYZ stock in my portfolio?

We get this question on a regular basis, usually when the stock in question has recently been in the news and has seen a meaningful move higher in price. When building portfolios, we choose high-quality companies with consistent and predictable earnings through a detailed evaluation process. In general, if a company is not included in your portfolio, it is because it did not pass our evaluation process or it would not fill a specific need in your portfolio.

HOW DO WE SELECT COMPANIES FOR YOUR PORTFOLIO?

The construction of a portfolio is a multi-step process with the ultimate goal of assembling a fully-diversified portfolio of high-quality companies. Our first step is to develop an intermediate-term economic outlook. Simply put, we consider measures of inflation, interest rates, and corporate earnings, as well as current monetary and fiscal policy. This allows us to determine if the economy is “growing” or “slowing.”

As a result, the next step is to construct a portfolio framework by deciding which industry sectors to emphasize, which to avoid, and how to weight them. Based on our outlook, we can choose to be neutral, over-weighted, or under-weighted in a portfolio relative to each stock market sector. Therefore, there is an intentional weight for each sector.

Once we have determined our economic outlook and outlined our sector exposure, we select the best companies to represent those sectors. The individual company selection process focuses on company fundamentals and is approached by thinking of a company as an operating business, not a stock. Godsey & Gibb’s focus is always to own quality businesses, each of which is a leader in its industry with a strong balance sheet and a history of consistently higher earnings.

Each company we buy provides exposure to certain aspects of a sector and makes an individual contribution to your portfolio. This evaluation and selection process is critical, as the construction of diversified portfolios to help meet your goals is the essence of what we do. Questions? Please reach out to one of our advisors.

Author: Ephraim Ulmer | Wealth Management Advisor
Written: March 15, 2021