January 24, 2015

How To Monitor Stocks In Your Portfolio

Recently, we learned about selecting good stocks to buy for the portfolio in the article:

We learned that an investor must do a thorough due diligence about the business & industry analysis and management analysis of the company before she invests her money. She should refuse to invest in any company where she finds red flags during her analysis.

However, buying good stocks is not sufficient in itself for generating long-term wealth from stock markets. Monitoring the stocks in the portfolio is equally important. Once an investment is made, it is advised that the investor should keep on periodically checking whether the company still fits into her standards of operational & managerial performance. Buy & hold strategy with a blind faith is not advisable for investors in stock markets.

In most of the countries, laws contain easily exploitable loopholes, regulations are not strictly enforceable and corporate governance standards are not high. We keep on hearing about instances of corporate frauds like Enron (USA) and Satyam Computers (India) etc., frequently. Such instances serve as a grim reminder that managerial greed succeeding at the cost of shareholders is a real possibility in corporate world & stock markets.

A long-term investor should focus on monitoring fundamental parameters of business, operations & managerial performance of the companies in her portfolio. She should not consider continuous tracking of market prices of stocks and calculating gains at the end of every day as monitoring of her portfolio. In fact, many renowned investors have advised against continuous follow up of stock prices.

Warren Buffett believes that he would be very happy is stock market is completely shut for two years after he has bought shares of a company. Continuous tracking of stock prices has the potential of inducing emotional reactions in investors. It might lead the investor to deviate from her long-term investment strategy and start frequent trading or timing the market, which are some of the 5 most common mistakes done by stock market investors

An investor should follow a well laid out process to monitor each of the stocks in her portfolio. She should focus on tracking below mentioned parameters about her stocks:
  • Important news about the companies & their industries
  • Financial results of the companies
  • Shareholding changes including pledge of promoter’s shares
  • Corporate announcements about insider trading and other related matters
  • Annual report of the company
  • Credit rating of the company
These parameters change at different frequencies and therefore, an investor can have her stocks’ monitoring exercise clearly laid out as Ongoing Monitoring, Quarterly Monitoring and Annual Monitoring:

Ongoing Monitoring


It includes tracking information about updates, which change without any predetermined time schedule. It contains following news and corporate announcements about the companies and their industries:

1. Following News about the Companies & Their Industries:


An investor should follow the news related to the companies & their industries in her portfolio. This would keep her updated with developments like any policy & regulatory changes, new investments or exits by players, changes in raw material and finished products etc. about her companies.

Google Alerts is a very good tool for this purpose. It is particularly effective for tracking companies, which are relatively unpopular and not covered by mainstream media. Most of the small & mid cap companies will fall under this category.

I advise that every investor should set Google alerts for all the companies in her portfolio. She can set the desired frequency updates as real time/once a day or week.

2. Corporate Announcements:


Every company is required to inform the stock exchange about any important event, which can influence its share price. Such events include buying or selling of shares by its promoters, commissioning of new manufacturing capacity, any merger or acquisition proposals, appointment or resignation of any senior management personnel/director etc. Such announcements are available at the website of stock exchange.

An investor should read various corporate announcements made by the company as these would keep him aware about latest developments within and related to the company. Many of these announcements would help her make additional buying or selling decisions in shares of the company.

Quarterly Monitoring


It consists of studying information released by companies to its shareholders and public every quarter. It includes financial results and shareholding patterns with pledge details of promoters’ stake.

1. Result Updates:


Most of the stock exchanges require listed companies to declare their financial performance at least once a quarter. Almost all companies follow March, June, September and December quarters for this purpose. Companies declare their quarterly and year-till-date financial results within 45 days from end of the quarter. Such results are available on the websites of companies as well as stock exchanges.

An investor should study all the quarterly results declared by her companies. However, she should not be overly concerned of subdued performance in one or two quarters. She should try to see the company performance in light of the general economic scenario. However, if a company is continuously declaring poor financial results, then investor should analyse whether she has missed something during her diligence before buying the stock. In case she finds out any vital information that changes her views about the company then she should consider exiting the stock.

2. Changes in Shareholding Pattern:


All the companies are required to declare their shareholding pattern & details of pledge of promoter’s shares once in a quarter. Most companies follow similar pattern of declaring it in March, June, September and December quarters. These details are updated on the websites of companies and stock exchanges.

The investor should study the shareholding pattern every quarter and compare it with the pattern of previous quarters. This analysis will tell her whether promoters or other major shareholders are increasing or decreasing their stake in the company. The investor should focus mainly on the changes in the promoter’s shareholding and can ignore the changes for other shareholders

Promoters increasing stake in their company is a very healthy sign as they are the people with most intimate knowledge about the prospects of a company. Hence, it is said that if promoters are buying stocks of a company, then investors should buy as well. 

On the contrary, an investor should be concerned if promoters are consistently reducing their stake in the company. She should analyse and try to find further information about it as it amounts to decreasing skin in the game of the largest interested party. It can be that the promoters might have sold their stake to raise funds for meeting any personal exigency. However, the investor should keep on investigating until she is convinced that promoters are still serious about the future of the company.

Other major investors like institutional investors (e.g. FIIs & DIIs) are temporary investors who come and go as per availability of funds with them. They do not have significant impact on business performance of the company until they increase their stake to strategic levels (>25% in India). Once they acquire the stake of >25%, they are able to influence the business decisions of the company. If a strategic investor is present in any company, then investor should follow change in its shareholding as well.

3. Pledge of Promoters’ Stake:


Companies declare the details of pledge of promoters’ shareholding every quarter along with shareholding pattern. Any amount of pledge should be seen with caution, as it is one of the first signs of stress in the financial health of the promoters & possibly the company also. If the promoter is not able to repay her loan, then lenders holding the pledge will sell the shares in the market. It would affect the share price very negatively and will reduce promoter’s shareholding in the company as well. Therefore, it is advised to stay away from companies where promoters have pledged their shares with financial institutions.

The below article is highly recommended to understand and interpret the quarterly results filings done by the companies, for effective monitoring of stocks:

Read: Understanding & Interpreting Quarterly Results Filings of Companies

Annual Monitoring


It includes studying information about the companies, which is updated once a year. It includes reading the annual report and credit rating reports for the companies.

1. Annual Report:


Annual report is the most important document published by every company at the end of every financial year. The company communicates its performance in the past year, strategy for future, expansion plans etc. to its shareholders through annual report. An investor can ignore reading the annual report of the companies in her portfolio, only at her own peril.

Reading annual report is the most important part of investment analysis. Therefore, I have written a separate article for understanding annual report of a company. You should read this article here:

2. Credit Rating:


Most of the companies, which have raised debt from markets or financial institutions, are required to get their debt facilities rated by any of the credit rating agencies accredited by regulators. Some of the prominent credit rating agencies active in India are CRISIL (part of S&P), ICRA (part of Moody’s), CARE and India Ratings (part of Fitch). These agencies review the financial position of the companies at least once a year to update the credit ratings issued by them. The agencies publish the ratings on their websites along with a summary document containing brief details about the comforting and constraining factors about the company. An investor can download the summary document from their websites.

Such ratings are a useful source of tracking financial health of a company for investors. Any improvement in credit rating is a positive sign and similarly any downgrade of credit rating is a negative sign, which should be analysed in detail by the investor.

Now a days, there are many financial portals, which accumulate information about the companies from various sources and present it to readers in one place. In India, financial media houses like MoneyControl, Economic Times etc. provide all the information about the companies like declaration of results, shareholding patterns, corporate announcements, credit rating information etc. on their websites. It is, therefore, advised that the investor should update her portfolio at any of these websites so that she can access most of the information required for monitoring of stocks in her portfolio at one place.

Therefore, we can see that for monitoring stocks in her portfolio, an investor should do:
  1. Ongoing Monitoring: Track the news about the company & its industry by Google Alerts and read corporate announcements
  2. Quarterly Monitoring: Study the financial results and shareholding pattern with pledge details of promoters’ stake and
  3. Annual Monitoring: Study the annual reports and credit rating reports of the companies.

There are many additional methods, which investors use to monitor their investments like attending annual general meetings (AGM), participate in analyst conference calls, visit company premises to see facilities, visit trade shows to see new product launches etc. An investor can put the amount of time & effort available to her for monitoring her portfolio. However, I believe that the above-mentioned process of monitoring stocks, if followed diligently, should suffice for a common investor.

It is pertinent to highlight again that a long-term investor should track the business, operational and managerial parameter for monitoring stocks in her portfolio. Tracking share price changes daily would do more harm than good to her.

Your Turn:


I would like to know about the tools you use to monitor stocks in your portfolio. Which parameter are the most important according to you? You may provide your inputs in the comments below or contact me here.

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