Performance Analysis for a Stock Portfolio

Even long-term stock portfolios should be analyzed and maintained to achieve consistent performance.

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Whether you are a short- or long-term investor, understanding how to maintain your portfolio's performance can mean the difference between steady gains or dwindling value on your investment. Regularly analyzing your stocks allows you to locate and sell any investments that could hurt the performance of your portfolio. You can't predict the stock market's performance, but you can make educated decisions that determine how it affects your financial well-being.

When to Evaluate

If the dollar value of your stock portfolio is consistently underperforming, it may be time to reevaluate your investments. Compare the dollar value of each stock to pinpoint the potential culprit in your portfolio's decline. Long-term investors should analyze their investment portfolio at least every year regardless of performance. Short-term investors will need to reevaluate stocks daily and remain on top of market news and industry reports.

Performance Ratios

Performance ratios give investors insight into the health of companies in which they invested. The most commonly used performance ratio is the price-to-earnings ratio, or P/E ratio, which measures how much a stock is priced over its earnings per share. To identify overpriced stock, the price-to-sales ratio, or PSR, is used. The PSR compares the market price of a company's stock with annual sales per share. A high PSR denotes an overpriced stock, which should be sold or avoided. An RSI, or relative strength index, can reveal when a trend reversal is imminent. If an RSI is above 70, the stock is overbought. If an RSI rests below 30, the stock is oversold.

Benchmark Analysis

Another key way to analyze your stock portfolio is to compare each of your stocks against its benchmark. Short-term stock investors should trade underperforming stocks or stocks that have reached their cyclical peak against their benchmark. Long-term investors have the luxury of time as they do not worry about cycles or current market fluctuations. Instead, long-term investors should compare overall stock performance to its benchmark's overall trend. If the stock is showing significant losses or a small but steady downward trend, it may be time to sell and reinvest in a better-performing stock.

Trend Analysis

When buying and selling stocks for your portfolio, look at the overall trend. Long-term investors should review current trend forecasts and yearly or five-year trend graphs to understand whether the stock is bearish or bullish or to determine whether the company is performing well. Short-term investors can use monthly, weekly and even intraday trend graphs to foresee the direction of stocks. Benchmark and industry trend graphs are also available on sites that have updated stock information. Industry trends can be compared to the stock in the same way benchmark trends are used. They can also be used to see how the industry as a whole is performing. When an industry is not performing well, reviewing the latest industry journals and news updates can suggest whether it is wise to hold or sell a stock.