Nobody is perfect and therefore no portfolio is perfect. They say that the market is always right, so there will always be something wrong with your portfolio. Or to put it more positive - there is always something to improve.

And therefore you need a watch list. A watch list is a list of investment instruments (like stocks) that you do not own (yet) but which are out-performing some others you do hold in portfolio. Should this be a reason to change (your portfolio) all the time? Swap from the ones you have to those on the watch list?

Trading too much will cost you an average return (on transaction costs), you have to earn additionally with out-performance.

The watch list will not tell you how to manage. You should already know that. In the same way that you know your investment preferences.

Yet the watch list will keep you awake.

A benchmark, like a general stock index is not the same as a watch list. It will also not keep you awake. When you experience that your portfolio is underperforming against the index, you will still not now what to do. You are not presented a set of alternatives.

Keeping up a watch list does provide you this set of alternatives.

The other interesting aspect about the list is that you will always find stocks that are against the trend. If the market is crowded with bears, you will always find a bull somewhere in the stock prairie.

Hans Bool is the founder of Astor White a traditional management consulting company that offers online management advice. Astor Online solves issues in hours what normally would take days. You can apply for a free demo account.