J.D. DURKIN: Good morning, subscribers, one and all. Chris Versace and I are now back to answer some of your biggest questions of the week. And this time around, we are zooming in on helping you make the best use of our numerous club offerings. Chris, good morning. Nice to have you.
CHRIS VERSACE: Good morning. And may the fourth be with you.
J.D. DURKIN: May the fourth be with you as well, my friend. Happy Star Wars Day, one and all. Let's kick it off with a note on general management. Of course, you are the lead portfolio manager. But, Chris, what exactly does that mean and how do you work with the various AAP team members. For people at home, of course, I'm referring to our good friends Bob Lang, Helene Meisler, Bruce Kamich, many other faces that our viewers have gotten to in the last few months. How does it all come together, Chris?
CHRIS VERSACE: Sure. So what I try to do is solicit feedback, insight both from a fundamental, technical perspective, from the cast of characters that make up the AAP team, you mentioned several of them. You can also throw Sarge Guilfoyle in there. And, of course, I talk maybe not every week, but most weeks with Todd Campbell who runs Street Smarts as well.
And what I like about this team is the collective experience they have. If you think about it, everybody on the team has been through various economic cycles. And the inter-disciplinary skill set that we have, is simply fantastic. Because it allows us to view things from several different angles. And as the lead portfolio manager, the person who makes the ultimate decisions, again, I gather insight, feedback, thoughts. And I weigh all of those. But ultimately, the final decision rests with me.
So when stocks work out, well, great. But when we're kind of in the red, I'm the person who has to work through that. And again, I will assess the data-- fundamental, thematic, and technical-- that I come up with. Also, from the insights from the team.
J.D. DURKIN: So for complete clarity, when it comes to buying and selling stocks, the buck stops with you, Mr. Versace.
CHRIS VERSACE: Final decision rests right here, that is correct.
J.D. DURKIN: All right. Set it and forget it. Many investors compare their portfolio performance to the S&P 500, of course, as a way of gauging success or gauging failure. When assessing your own performance, Chris, how do you gauge success or failure? And how does performance actually impact any of your broader strategies?
CHRIS VERSACE: So most people like to have some benchmark. It's very easy thing to compare Oh, we did this versus that. It's good or bad-- good, better, or best, something along those lines. The key with that, though, is understanding that the market's kind of an evolving story. And sometimes, positions take time to play out. And I'm referring to the underlying thesis, of course.
So it's a little difficult sometimes to compare one point in time with another. Because again, some of these things take longer to materialize. The other issue I think that we have to recognize is that in the portfolio, we have a variety of market cap positions. We certainly have large-cap positions mid-cap positions and small-cap positions. So we really have to contemplate which is the best barometer for each particular position.
I tend, as a result, to look at almost a blend of market parameters. That would be, of course, the S&P 500, the NASDAQ, and the Russell 2000 to really capture that small-cap exposure that we have
J.D. DURKIN: Yeah, obviously most of our members don't perfectly mirror the portfolio when it comes to managing their own individual holdings. But, Chris, do you have any advice for how members should follow along when you buy or trim a particular position, especially for any members who may not have fully built the position at the same time as the club?
CHRIS VERSACE: Sure. So what we try to do is really maximize a couple of different things when we're buying and selling in the portfolio. Just to keep it kind of simple, we want to be adding stocks when the risk reward is compelling. We want to be trimming stocks back when they've had a significant run. So the risk to reward is a little more balanced. And we want to contemplate exiting positions when the risk to reward is skewed the wrong way, i.e., more risk than reward, they've moved past our price targets, or the thesis is changing. And a great recent example of that would be on UPS.
But in terms of following what we do, again, generally speaking, we should mimic what we do. The only time that it might get a little complicated is if we have built out a full position in a particular stock. And by full position, that tends to be around 3.8% of the portfolio's assets up to 4%. Typically for prudent portfolio management, when one moves past the 4% level, we will do some trimming.
And, again, that's largely because it is just such a big position relative to others in the portfolio. We like doing that. It allows us to, as we say, ring the register and kind of redistribute those gains into other positions or, perhaps, start a newer position.
J.D. DURKIN: All right. Let's conclude here with a little bit of housekeeping, if we can. Chris, where can members find your thesis on every name in the portfolio? And what sources do you end up using when you analyze and you research all of the holdings in the portfolio itself?
CHRIS VERSACE: Wow. Those are two big questions. So the first one is the easiest one. The best place to go is always the Friday Round-Up. It's a great recap of everything that we're thinking on every position in there. So I would always start there. In terms of the sources that we look at when we're assessing new positions, contemplating existing positions, there's a treasure trove of them. And I think I've posted some data in Alerts about this.
But just quickly, the big ones when we're starting to build a position, 10 Qs, 10 Ks, we can really understand the business, understand which businesses inside a company are the real drivers of their revenue, their performance. We also try to trace back the history of a particular stock to understand in the past what key items have been real drivers.
Now, when we talk about individual positions, there's a slew of data that we try to analyze and understand what really is pertains to driving the share price. And again, it really depends on the particular industry that the company is in.
For example, if we were looking at a company like, say, Applied Materials, we want to understand what's going on in the capital equipment for semiconductors. We're going to want to look at capital spending levels. But we'll also want to look at the industry data that's put out. And I'm referring to book to bill that's specific to that industry. That's one example. I could go on with each particular position that we're assessing for the portfolio or one that we're actively invested in.
And what I'll try to do in future Alerts is really discuss and give links to this particular data that we're talking at that moment.
J.D. DURKIN: The force is strong with this one. That's the great Chris Versace. Chris, Thank you.
CHRIS VERSACE: Thank you, J.D. .
J.D. DURKIN: Members, please keep sending us all your questions. You could do so by sending those questions on over to a AAPClube@thestreet.com. Have a great day. May the fourth be with you. We'll see you again soon.