The Pro way to create stock portfolio: Core and Satellite approach

0. What is the fuss?

Over time, investors in the stock market develop a style of creating their portfolio. This style varies for each investor and depends on their risk-taking ability, research, financial goals, etc. But one common thing is that the knowledge from blogs, newsletters, and social media usually influences the portfolio approach. The end game for investors remains to maximise returns by taking minimal risk.

I invest via mutual funds and individual stock picking. Over four straight years, I found my mutual funds outperforming my picked stock portfolio. This triggered me to read about mutual fund managers' portfolio creation approach. Given mutual fund managers have an army of educated, experienced, and trained analysts to pick stocks, I always assumed their portfolio creation method would be complex and out-of-reach for retail investors like me. I couldn’t be more wrong.

In this post, I share the portfolio creation approach that mutual fund houses have used for decades to generate index-beating returns. It is simple, makes sense, and everyone can do it. Let’s get started.

1. What is this approach, and why it makes sense?

The approach is Core and Satellite. Imagine the solar system, with the sun at its core providing stability. The planets revolve around the core. Some planets take longer to make one complete rotation around the sun, and…