Intermediate3 min readThe FoudaLens Method · 10/10
Portfolio Health on FoudaLens: How Is It Calculated?
Your portfolio page shows a number from 0 to 100 called portfolio health. It looks at how your money is spread more than at your gains. We will see how it is calculated and work it out on an invented portfolio.
What you will learn
Know the parts: a starting point, four additions and two deductions.
Compute a portfolio's health yourself on an example.
The calculation starts at 40 points, then adds four parts:
Returns (-20 to +20)The average gain or loss across positions, times 2. An average of +5% gives +10; -5% gives -10.
Winning positions (up to 15)The share of positions in profit, times 15.
Diversification (up to 15)The number of sectors and asset classes, with full marks from 5. Stocks group by sector; funds, gold and silver each count as a class.
Position count (up to 10)From 5 to 15 positions: 10. 3 to 4, or more than 15: 7. Fewer than 3: 3.
There are two concentration deductions: 10 points when one sector or class is above 50% of the portfolio's value, and 8 points for each single position above 30%. The result is rounded and kept between 0 and 100.
A worked example
An invented EGP 100,000 portfolio holds four stocks: Bank A at 40,000, up 10%; a real-estate company at 25,000, up 4%; a food company at 20,000, down 6%; and Bank B at 15,000, up 2%.
Starting point40
Returns (average 2.5% × 2)+5
Winners (3 of 4 × 15)+11.25
Diversification (3 sectors ÷ 5 × 15)+9
Position count (4)+7
Banks are 55% of the portfolio-10
One stock is 40% of the portfolio-8
Portfolio health54
40 + 5 + 11.25 + 9 + 7 - 10 - 8 = 54.25, so 54.
The two banks together are 55,000, or 55%, above the sector limit. Bank A alone is 40%, above the position limit. Those two deductions took 18 points, more than the returns added.
The notes beside the numberNotes appear with the number, such as "Your portfolio is concentrated in the banking sector (55%)" or "Bank A makes up 40% of your portfolio". They tell you where a deduction came from.
What does the number not see?
MythHigh health means a safe portfolio.
RealityThe number does not measure each stock's risk or volatility. It measures spread and results so far.
MythCash improves health.
RealityCash is not part of the calculation for now.
Watch outThe number helps you see concentration in your portfolio; it is not a verdict on it or advice to change it. How you spread your money depends on your goals and the risk you can carry.
Check your portfolio's health
Add your positions on the portfolio page and see the number and the notes beside it.