Does Your Portfolio Measure Up?

As some of you may already know, Morningstar.com has an active community of investors who discuss investing strategies, manager expertise, and even sound off on Morningstar analyst opinions from time to time. Lately, this community has had even more to talk about than usual: On August 4, we launched our latest investment tool, called Portfolio Sharing, which is available by clicking the Sharing tab in the Discuss area of Morningstar.com. This free tool allows investors to post portfolios and track their performance against other users' portfolios and professional money managers. In fact, the tool even issues a star rating for the portfolio relative to appropriate Morningstar fund categories. In this article, we'll discuss the features and advantages of the tool, and we'll show you how to set up a portfolio and share it on the site. There's plenty of portfolio-sharing already going on--400-plus investors have posted portfolios since the tool's launch--so consider this article your invitation to join the fray.

The Benefits of Sharing
Morningstar.com makes it easy to see how an individual stock or fund is doing relative to its category and the rest of the market, but it's tough to know whether your portfolio makes the grade. At its most basic level, that's what the Morningstar Portfolio Sharing tool offers. Once you share a specific portfolio, you receive a category-based star rating for the holding period in question and you can also view your portfolio next to those of other investors. Besides performance comparison, there are a few other nifty tricks you can do as well after you've shared your portfolio. Portfolio Sharing harnesses Morningstar's X-Ray tool to show you how much you own of the underlying stocks and also allows you to keep track of sector exposure across asset classes. And if you don't want to share your Morningstar rating with everyone, but just a few selected investors, you'll be able to do so. (We'll discuss how later in this article.)

Even if you don't want to share your own portfolio, this tool offers plenty of other features you may like. If, after perusing what other investors have posted on this page, you like what you see in another investor's portfolio (or maybe want to question his or her decisions), you can converse with the investor by clicking on the portfolio and then selecting the tab Blog Q&A. Aside from viewing the portfolio performance and the underlying holdings, you can also read about the investor's strategy under the tab marked Strategy and consider the investor's latest market opinions under Blog Posts. And if you find a portfolio you'd either like to mimic or tweak according to your own investment opinions or constraints, click Save as a Portfolio to make it your own. You can then leave it as is or adjust it as your see fit with the Portfolio Manager tool. Either way, you can see what performance would have been had you owned that portfolio or a version of it in the past.

A Few Caveats
There are a few details to keep in mind before setting up a portfolio of your own. The first concerns the star rating. Like the Morningstar Rating for mutual funds, this rating measures a portfolio's risk-adjusted performance against open-end mutual funds. One key difference is that the mutual funds you are compared against need a three-year track record to earn a star rating, but you can create a rating for any portfolio that's a year old or more. We rely on a shorter timeframe for portfolios because we want investors to get a sense of their competitive performance right from the start. You'll have to remember, however, that your peer group's star rating is based on longer periods, so when the short run has been a good market for your portfolio, you are at a relative advantage, and vice versa for a less favorable market. Finally, the Morningstar Rating for portfolios doesn't take into account trading commissions. That's mostly because commissions can vary quite a bit. If you trade frequently, keep in mind your realized star rating may be lower than the Portfolio Sharing tool suggests.

Setting Up Your Portfolio
So, how do you get started? The Portfolio Sharing tool is based on another free Morningstar tool, called Portfolio Manager. This tool is where you first create the portfolio you can later share with other investors. Here's how it works.

Step 1
On the homepage, click on the Portfolio tab. That takes you to a page with a gray box labeled Select Portfolio or Watch List. Here, you'll be able to either import a portfolio you've already outlined in another software program, such as Excel, or enter a new portfolio. On this page, make sure you don't uncheck the default option, Portfolio. The Portfolio Sharing tool won't accept the Watch List Portfolio choice.

Step 2
Once you've clicked continue, you'll be able to enter each security, the number of shares, and the date you bought them. (Click the tabs at the top to switch asset classes.) If you don't know the exact price you paid (or would have paid, if you are creating a hypothetical portfolio), don't worry. Clicking the "$" beside that entry box will calculate the closing price for you. Also, make sure you've also entered a name for this portfolio at the top. Portfolio Manager won't let you continue unless you do so.

Step 3
Finally, click Done. Your portfolio is stored and you can move on to the Portfolio Sharing tool. To input your portfolio into Portfolio Sharing, click on the Discuss tab at the top of the page. Once that page opens, click on the tab marked Profile. (If you don't have a Discuss account, start with the Join tab to set up a username for Discuss.) This brings up a list of new options at the page, including Portfolio Sharing. Clicking on this button calls up the transaction portfolios you've created with the Portfolio Manager tool. To share the portfolio, click the box under the far right column marked Share. This will bring up a pop-up box where you can edit the portfolio name, describe the strategy the portfolio uses, determine whether to make your rating public (remember when we discussed how to keep your rating private a little earlier?), and whether to limit access to your portfolio to your favorite users. Your favorite users will be those you've marked in the Favorites feature in Discuss.

You are also given the choice to join into a group of investors, like those created around investment clubs or contests. Under the Group Membership option, you can opt to join any existing group or create a new group. This allows you to easily compare your portfolio with those of other group members. There are a few groups already in existence, and no group is closed to new members.

After you've clicked Save Changes, your investments are out there for the world to see and your return graph will be available the following day. If at any time you want to pull your portfolio from view, simply uncheck the box marked Share under your profile. You can also edit portfolio information here, or make changes to your investment selections in the Portfolio Manager tool.

What Are Your Thoughts?
With barely a month under its belt, this tool is new and will be updated with additional features based on your feedback. Once you've had some time to play around with it, let us know what you like (and how you think we could improve the tool).