Over the last few months, I’ve been reviewing my principles of portfolio management. So, this week, I’m going to try to bring them all together, and look at the practical-ities of actually running a portfolio day-to-day.

Let me start by recapping the debate I mentioned a couple of weeks back: are markets really efficient?

If you believe the industry, markets are horribly inefficient and you need a star fund manager to spot the opportunities. Cue
the inevitable trip to the independent financial adviser (IFA) who will stuff your money into unit trusts.

If you believe the Efficient Markets Hypothesis crowd – which includes a lot of academics – this is lunacy, and active fund managers are a waste of time and money. They don’t spot the opportunities because they can’t, but they still charge lots for trying. If you subscribe to this view, you should build your portfolio out of index tracker unit trusts or exchange traded funds (ETFs).

Usually, the debate is binary: either/or. But I think there is a sensible middle ground. Markets are efficient most of the time, so index trackers as core holdings make a lot of sense. Some markets, however, are not very efficient – such as emerging markets, alternative assets, venture capital – so these do require active managers. That, for an adventurous investor like me, means using specialist investment trusts with low charges.

Both the core and specialist holdings need to be built up with care. Should you just buy and hold? I have my doubts, unless you really have the patience to hold for 30-40 years come what may (in which case you probably will be rewarded for your patience).

Even with a core of index trackers held for the long term, you need some protective mechanisms that control risk.

I’ve mentioned market timing strategies before, using a variety of measures – not just one. In fact, I’m soon going to launch a “dashboard” of market timing measures including price/earnings ratios, Coppock indicators and volatility measures (if you think of others, drop me an e-mail).

Another risk management tool is diversification. With the balance of economic power moving away from the developed world, even unadventurous types need to put more into emerging markets – I think more than 10 per cent.

But investors seeking other diversified assets will have to work harder to find holdings that don’t move in line with the S&P 500. Don’t assume that private equity and industrial commodities are lowly correlated with the S&P – they’re not.

A more concentrated portfolio also makes sense. Focus on a few big themes, such as infrastructure, utilities, water and agriculture, with some satellite portfolios of deep value stocks.

Keep the numbers of positions small – and be wary of buying individual shares in these volatile markets. I’d go so far as to say that no more than one third of your portfolio should be in individual shares or bonds, rather than a fund.

When you do buy individual shares, look for quality stocks with solid dividends. If you can find companies that are well funded and progressively raising their dividends, stick with them.

Try to buy these holdings within a tax wrapper. I do a lot through my self-invested personal pension (Sipp), and try to do it cheaply. I particularly like the cheap trackers from the likes of Vanguard, Fidelity and HSBC. How you buy these funds also matters, too.

Finally, monitor your portfolio – but not obsessively. Constant checking five or six times a day (as I, rather hypocritically, do) is a road to ruin. It encourages you to move in and out of positions too quickly. Better to set up automatic stop loss and profit taking alerts with your broker – that way, you’ll only be bothered when those limits are hit.

Increasingly, I do most of my monitoring via my phone. In my view, the FT Mobile service is the best all rounder – it’s packed full of features and simple to use (although you have to register for full coverage). Bloomberg Mobile runs a close second.

I also use two specific share price monitoring programmes for my iPhone: Shareprice’s iPhone App (free) and Charts Live (about £2 via the Apple Apps store) which don’t offer all the groovy news content but are brilliantly simple to use.

adventurous@ft.com