Portfolio Tune-Up: Five Tips

With baseball season underway, the weather warming up and over a third of the year now history, it is time to give your portfolio a good tune-up.

Heading into 2008, I discussed how you can get your portfolio in shape for the new year. As a follow-up to that lesson, here are five things you can do right now to be better prepared to outperform your benchmark throughout the rest of the year.

1. Get the Red Out

Like spring allergies that can make your eyes all red and teary, your portfolio might be chock-full of stocks which are losing money ("in the red"). So take a hard look at any losing positions and put in the effort to understand why those stocks are down.

If the fundamentals remain strong, then perhaps you want to stay pat or add to that position. Maybe you just made a tactical mistake as to the timing of your buy, but your investment thesis or strategy is still sound. If that's the case, then stick with the investment. If you bought the (losing) stock for a short-term trade and ended up owning it as a long-term investment, then consider selling it now.

Should you determine that the fundamental factors that led to your investment have deteriorated, then it is time to let go. Recently, I purged my portfolio of the CME Group (CME Quote). I owned it for nearly nine months and did not sell it at the right time. I now believe that it was priced too high and the market will no longer pay a premium for its growth.

Finally, if you identify a long term loser that you are waiting to "come back," such as (in my opinion) Pfizer (PFE Quote) or Six Flags (SIX Quote), then overcome the emotional attachment you have developed over the years and divorce it from your portfolio.

2. Look for the Bull Markets

Even with the current relatively flat market, plenty of stocks have sharply advanced. It just goes to prove to you that a bull market always exists, even in poor economic or investment climates. The challenge is to now look ahead six to twelve months and determine the stocks or sectors that are likely to advance.

At the same time, identify which ones are more likely to perform poorly.

We know how well the commodity markets have performed. Perhaps that will continue and you should move more of your portfolio to that sector.

However, the price of energy is a big concern for the markets. As oli continues to soar, many people believe that natural gas will become the next bull market in energy. Alternative energy is still in its infancy and the next bull market could be in solar or wind.

Housing has been in the dumps for many quarters. Perhaps it will turn the corner and begin a new growth cycle. The same can be hypothesized for the financial sector.

I spend plenty of time and energy looking for the next bull markets and suggest that you do the same.