Portfolio construction

Diversification is about correlation, not count — and NEPSE makes that harder than most markets, because banking and finance dominate the exchange by market capitalisation. A portfolio built from the largest, most liquid Nepali shares is concentrated in one sector by default.

Diversification means holding things that do not move together. Holding many things that do is concentration in disguise — and on NEPSE that trap is unusually easy to fall into.

Rebalancing, worked

Target 60% equity, 40% fixed deposit, on Rs 10,00,000. After a good year equity is worth Rs 7,50,000 and deposits Rs 4,50,000 — total Rs 12,00,000.

• Actual split = 62.5% / 37.5%. Target values are Rs 7,20,000 and Rs 4,80,000.
• Sell Rs 30,000 of equity, move it to deposits.
• This sells what rose and buys what did not — mechanically, without a forecast.

Measuring performance honestly

• Compare against the NEPSE index, not against zero. Beating cash in a rising market is not skill.
• Include costs and tax. A gross return you never received is not a return.
• Count the losers. Judging yourself on remembered winners is the most common self-deception in investing.
• Measure over years. One good year distinguishes nothing.