How We Select Stocks for Our Equity Portfolio
Finding the right stocks used to be a grueling process that all wealth managers love to hate. But we have leveraged technology to make this process simpler and the results better, for our users.
We wrote an algorithm that filters through the top fund managers in the US, find their newest stock purchases and then ranks the stocks by how many fund managers are buying them. The more fund managers are buying a specific stock the more promising and interesting we consider that stock. If the biggest fund managers, with their dozens of analysts, research budgets and more find a stock interesting, we think it’s worth checking out. Once we curate this list of “power stocks”, we then run them through further analysis until we settle on the best idea of them all which we add to our portfolio.
The Rise Process
Any stock that makes it into our portfolio involves two distinct processes which blend to create the toughest evaluation that any stock has to survive.
(Key takeaway is that if a stock survives this process, let’s just say it’s super-duper incredibly “interesting” and worthy of a spot in our portfolio of elite stocks that will perform for years to come. It’s like a stock market version of getting into Harvard.)
Our filter is an algorithm that scans the stock holdings of the best fund managers’ across the US every quarter. It picks out the new stocks that most of these managers are adding to their portfolios that quarter. The more fund managers are adding a particular stock, the higher that stock ranks on our list since that means a lot of investors and research analysts think these are good investments.
At the end of the process, the Filter would have run through thousands of stocks and selected the top 5 most popular positions, or less than 0.5% of the total. That acceptance rate makes this the Ivy League of stocks.
The Admission Board
Our process does not end there. Once the top 5 stocks emerge from the filter, we send it to our team of investment analysts. Their job is to inspect the financials of each company, its current stock price, its long term prospects, profitability, the quality of its management and its competitive advantage. Then we rank them from 1 to 5 according to their cumulative performance on all these fronts. AKA, their CGPA.
Once the ranking is established, we go back to our existing portfolio and pick out the one that is not living up to the expectations it was admitted on (AKA the dullard). That gets expelled from the portfolio, while the #1 ranked new stock is admitted.
The Final Results
This process happens each time we make new investments into the portfolio. What it is designed for is to make sure we hold a relatively concentrated portfolio of around 20 stocks on average. Sometimes when markets are down and deals are plenty we can expand this to 30 and when market normalizes, we whittle it back down. But we go through this process to make sure that not only are we selecting compounders — that is, stocks that continue to grow more valuable and profitable over a long period, but that we are also picking better and better stocks over time, which means the already great portfolio performance is constantly getting better. This is better than holding just market tracking ETFs, or trading stocks yourself, as our performance so far has proven.
But beyond performance, holding the best stocks means that you’re always assured that your investments are low risk, provide stable returns and allow you to sleep comfortably every night.
Having butterflies in your stomach might be great for your love life, but it’s definitely not good for your investments. At Rise, we want you to know that you’re holding investments that balance safety, quality and long term growth.