A disciplined investor will have a pipeline of ideas says Tony Morgan. Your actual portfolio should be a tight set, but your pipeline is the sandbox where you test and track your potential next additions

Building a pipeline of investment opportunities will help build a growing investment portfolio.

What do I mean? The concept is not dissimilar to cooking a meal or planning your grocery shopping for the week, or say growing a garden. You are planning ahead, building an inventory, but at the same time reconciling your assumptions, requirements in the future with the present.

Building your equity portfolio

The pipeline helps in bridging reality from the present to the future. It will help you judge success compared to other opportunities that interest you.

My approach is modelled on how pharmaceutical companies approach their pipeline of drug and or diagnostic development. This is a research and development (R & D) exercise, developing intellectual property and hopefully products that can contribute to both revenues and earnings. In our case, we are developing a road map of investment opportunities (whereby we may or may not ever invest in).

Show us the money

How much can you dedicate, monthly, yearly to buying investments?

And of course, how long you can keep all these funds directed to investments; that is, 1 year, 3 years, ten years? All hypothetic questions, but very important as a basis to judge how to tackle the real pipeline issue, the potential and/or investments of interest.

Gather, combine and accumulate these stock-investing ideas and let time and returns do their thing.

The Stud and his pipeline

My son is in the process of putting down his first well-earned $1000, via Sharesies.

Now I am thinking he should be able to save $1000 per month, approximately $12,000 a year at that rate.  At 26, his investment time frame is very long, that’s assuming he doesn’t require any of this stream of funds for any proverbial Bach down the track.

Some months back he told me he would split the funds, 50% into some Index Fund and 50% into Facebook. That was his pipeline of dreams back then. But now as he has gathered the funds and ready to put his money where his mouth is, he has asked for more ideas.

I have spewed out a group of widely differing stocks to get his mind thinking.

I hope he is listing them. This is what you may want to do. I do. My pipeline of opportunities is very broad.

I firstly look at my existing portfolio, how they are going individually and then as a group (that diversification concept again) versus valuation etc. and my ultimate investment thoughts around holding, buying and selling. I am focusing there first, then and only then will I think about the future, the pipeline.

As a DIY, inquisitive, curious investor you are always looking over your shoulder, what could be next. Is the grass greener over the fence? Building the pipeline enables this luxury without being caught, i.e. in this case, not laying out any funds. No harm being done!!

The Stud is just starting this process and because he now has plenty of insights and ideas, is discovering the decision-making process is a bit harder than theory.

The Pipeline in Action

As a longer served investor I have built up a very broad list of potential ideas. I have categories as follows:

• USA Watch list,          
• UK stocks list,
• Germany,
• Health and Diagnostic,
• Australasian stocks,
• Small Cap,
• Fuel cell, Electric and Solar,
• Semi-Conductors,
• Engineering,
• Other European,
• Oil and Gas,
• Financials,
• Food and Nutrition,
• Retail,
• Software and Tech

Overall there are more than 200 individual stocks within the categories. In the semiconductor sector alone, there are 87 companies. I need to prune all lists. However, the goal I want to emphasise is to provide a feedback loop for my existing actual individual investments, which number about a dozen. 

By building these lists over the last ten years you can see how my focus has shifted. I am heavily focused on a certain part of the technology world, the mostly hardware part, the semiconductor industry. And you can understand this given my particular large holding in Rakon, which has elevated a wish to understand its universe by inspecting many of its peers and plethora of other companies which help support the infrastructure behind the technology revolution.

At the same time, since I have difficulty grasping software companies. I have a smaller list, but it again helps me from a general knowledge perspective.

Food and Nutrition and the Health and Diagnostics are the next sectors than appeal to my investment thought patterns. I have investments here.

Retail, and Oil and Gas are stock lists that have come about from past thinking, but really are areas of investment where I am just not very excited and thus lack skill or the will to discover in detail.

The Fuel Cell, Electric and Solar list of stocks has grown quite rapidly recently. This is a reflection of a general appreciation of the ideals of a more environmentally friendly world. I have been taking notice. Here I have been astonished by some of the returns. There are missed opportunities, but the extreme volatility has kind of justified my scepticism over valuations. I have learned a thing or two here, without money down. 

What matters most is my existing portfolio, but the pipeline lists do expose me to opportunities that you would not experience if you had not taken the time to prepare them for yourself. There is some work, but it has a purpose. My understanding of a larger universe has expanded.

For instance, in the Semiconductor space I have really broadened my appreciation and understanding of this very large community of company’s helping the technology revolution. This has helped me appreciate and understand my main investment.

And what could be become very important in the future (I have no idea yet) is that I am just beginning to uncover of few interesting prospects should I have more funds to invest. However, again I point out, stay disciplined, keep your portfolio reasonably tight before adding another to your portfolio.

Your lists are your targeted R & D space (I have all my lists within Yahoo Finance, so investment news comes up daily), a tool to help your DIY investment strategy. Get on with it.

Tony Morgan has run a portfolio management business and an equity brokerage, both of which were purchased by Craig Investment Partners. He now runs a small family office that invests globally. Other articles in this series can be found here. And the profiles of all the NZX50 companies can be found here.