Whether you are looking for a portfolio manager, or managing your own investments, don’t overlook the importance of these portfolio manager skills

Portfolio managers choose from a range of investments, including stocks and bonds, to maximize returns for their clients.

Here are portfolio manager skills to use if you are managing your own portfolio. There are also situations to consider if you hire a professional to manage your portfolio, including actions you must take to avoid falling victim to self-serving investment salespeople.

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5 portfolio manager skills to practice with your investments

1. Learn all you can about your investments. Frequently visit the websites of the companies you invest in. Get on their email lists, and read their quarterly and annual reports. Ask your broker for research reports. Read the business news every day.
2. Take a broad view. Consider earnings, dividends and other factors in making portfolio management decisions. They matter far more than short-term stock-price trends.
3. Invest consistently. Don’t follow a portfolio management strategy of trying to buy at the bottom or sell at the top. Pick out a selection of well-established companies, and invest gradually over a period of years. Plan to hold indefinitely. You can always change your mind and sell if fundamentals deteriorate or your needs change.
4. Practice “dollar cost averaging.” Invest the same dollar amount on a regular basis. That way you’ll buy more shares when prices are low, and fewer when they’re high.
5. Beware of advisor failings. Some advisors are “permabears”—perpetual pessimists. Others are blind to risk, so they recommend investing in speculative stocks at outrageously high levels.

Developing sharp personal portfolio manager skills will help you see through investment product sales pitches and avoid giving in to costly portfolio changes

Investors tell me that when they listen to an investment sales pitch, the terms “retirement portfolio” and “wealth manager” seem to come up more than ever.

The sales pitch suggests that when you’ve retired or are close to it, you need to make big changes in your investment portfolio, to protect your wealth and maintain your standard of living. The salesperson may refer to himself or herself as a “wealth manager” who is equipped to design the best retirement portfolio for you, generally by looking beyond the stock and bond markets.

Most of the time, this will involve a partial or complete move by you out of your current portfolio and into a selection of investment products created by insurance companies and other financial firms. These products will be tied one way or another to the stock, bond and other financial markets. They will be designed to cut volatility, provide a low but steady level of income, and possibly provide some capital gains and/or protection against inflation.

However, this retirement portfolio will generate substantial, continuing fees for the wealth manager who sold it to you, and for the financial institutions that created the investment products. The fees will come out of the growth that your portfolio might otherwise have generated for you if you had kept some portion of it invested directly in stocks, rather than through the loose and costly connection offered by the investment products.

In addition to giving up a portion of growth you might have had, your new retirement portfolio will probably expose you to liquidity risk. You’ll be stuck with the institution that created the products. If financial conditions or your needs change, you may only be able to make changes at a substantial cost, or you may not be able to make changes under any circumstances.

When you think about it, this is what you’d expect. You are reducing volatility, and trading potential growth for income and stability. This costs money. That’s because you are buying investment products, which come with an assortment of fees and costs, some hidden in the fine print. The cost may be much more than you expect.

Bonus: Understanding the amount of goodwill that a company carries is an important portfolio manager skill

As part of our portfolio management strategy, we put a lot of importance on the amount of goodwill that a company carries on its balance sheet as an asset.

Goodwill is an accounting entry that reflects the price that the company paid for its acquisitions, minus the value of the tangible assets, like land and equipment, that it received as part of the acquisition. The term means “value as a going concern.”

However, goodwill acquired in an unwise acquisition can lose value overnight. When that happens, the company has to write it off against earnings. At worst, the company might have to write off most, if not all, of its goodwill.

If that write-off wipes out most of the company’s shareholders’ equity, and/or most of a year’s earnings, it can devastate the share price. That’s a situation your portfolio management strategy should avoid at all costs.

Have you experienced self-serving or deceptive investment product sales pitches before? What did they involve?

What skills do you think are key to managing your own investment portfolio?