It also happens to go down. And I inevitably start asking myself, “but why?”

It is even worse when my portfolio falls more than the index.

And the waltz of questions begins.

“Have I selected the wrong companies?

Do I have a sizing problem?

Have I chosen the wrong sectors?”

Perhaps you recognize partly yourself in this, and you’re looking for answers too.

The aim of this article is to give you a method to identify the main drivers of your portfolio’s performance, examine companies’ fundamentals, and distinguish changes in business performance from changes in market valuations.

I’m not here to tell you whether your investment decisions were right or wrong.

We’ll focus on a portfolio of individual stocks and cash, without leverage.

And at the end of the article, you’ll find a ready-to-use prompt you can give to your favorite AI to analyze your own portfolio.

Subscribe now

1. Choose a comparison basis

You must first establish a basis for comparison. This means choosing an analysis period and a relevant benchmark.

For a portfolio mainly invested in US equities, the S&P 500 is a natural comparison.

But be careful: comparing returns without comparing risks can lead to wrong conclusions.

It does not make much sense to compare Walmart and Nebius directly. One has a relatively predictable business, while the other has a radically different growth and risk profile.

At the portfolio level, it is the same thing.

If you are 100% invested in technology stocks, you might be tempted to take the Nasdaq-100, but it has many non-tech companies (36% outside tech, with names such as PepsiCo), you can choose an index such as the MSCI World IT.

If you hold European equities, take the STOXX 600, etc.

On the technical side, simply make sure to compare returns in the same currency, including dividends, and to use a return that properly accounts for deposits and withdrawals.

Be careful, in particular, with screenshots of brokerage accounts: the change in account value does not necessarily correspond to its performance. Interactive Brokers, for example, lets you distinguish time-weighted return (TWR) from money-weighted return (MWR).

2. Identify the companies that explain the gap

Generally, most gains and losses are explained by a minority of determining factors. This is an application of Pareto’s law.

If you have a stock that loses 50% but represents only 1% of the portfolio, it will have the same effect as a stock weighing 10% of your portfolio and losing 5%.

Even if returns are explained by a minority of stocks, it is in your interest to study all your companies, because each of them holds an explanation that can help you progress.

The only difference is that the lesson will have cost you less, in the case of a loss.

Also remember to distinguish absolute performance from performance relative to the benchmark.

A company that gains 10% may have hurt you if your benchmark rose 25% over the same period.

Conversely, a position that loses 10% may have limited underperformance if the index fell 20%.

What interests us is each position’s contribution to the gap with the index.

The analysis must also include transactions made during the period, which can explain a large part of positive or negative gaps.

This includes rotations, which will have a positive or negative effect, and additions or withdrawals of capital (or leverage). If you have €50,000 and add €5,000, that is 10% more thanks to your savings, which is an excellent thing for your wealth, but requires an adjustment when analyzing your performance.

If you have a portfolio with 20% cash, and assuming for simplicity that it earns nothing, you miss 20% of the rise or 20% of the fall.

So you mechanically cannot match the S&P 500 with a portfolio made up of 80% S&P 500 and 20% cash during a rising market.

The diagnosis must make it possible to answer four questions:

• Which companies explain most of the gap?

• What was the effect of their weights?

• What contribution came from purchases, sales and additions to positions?

• What was the effect of cash?

3. The two dimensions of the share price

The fact that a company has lost 30% on the stock market does not necessarily mean that it is doing 30% worse.

The key is to split the investment into two parts and study each one separately. And that is fortunate, because the P/E ratio lets us do this easily:

Share price = (Normalized) earnings per share × P/E

The earnings-per-share part corresponds to fundamentals, and the multiple to market sentiment, which itself reflects expectations.

It is often necessary to adjust earnings for exceptional or financial items to establish a sound basis for comparison. Other, more complex indicators can be used, such as FCF, EBIT, OCF, etc.

This formula has the advantage of simplicity.

Example: a company that improves, but whose share price falls

Imagine a company whose normalized earnings per share go from €5 to €6.

Its earnings therefore increase by 20%.

But at the same time, its P/E goes from 20 to 15.

In this example, the decline comes from a contraction of the multiple, despite earning 20% more per share.

At a constant multiple, earnings growth would have taken its share price to €120.

And if the company is not profitable?

When normalized earnings are not positive and usable, we can use sales per share and the Price-to-Sales multiple:

Share price = Sales per share × P/S

The logic remains the same: distinguish the evolution of the business from that of the valuation multiple.

Generally, this type of company is even more difficult to value, which explains large and often unreasonable share-price movements.

4. Start with fundamentals, then study the multiple

The decomposition between earnings and multiple allows us to measure what has changed. It does not prove that the market’s reaction is justified or excessive.

To answer this question definitively, we must start with fundamentals, which will inform us on the following point: “Is the company in a better position than at the beginning of the period?”

The simplest thing is to have an investment thesis, if possible updated at the beginning of the period, then to consider the elements that have changed since:

• What are the results?

  • Margins and profitability.

  • Debt and financial position.

  • The main growth prospects.

• What risks and opportunities could arise?

• How is the competition doing?

A good investment thesis will indicate a bull thesis and a bear thesis, sometimes materialized in the form of key risks to the business, whose realization may draw closer or move further away.

And if you do not have a written thesis, you can still carry out the financial diagnosis. You simply will not be able to verify as reliably what you had initially expected.

The aim is not to redo a complete analysis of the company. We are trying to determine whether its economic position has improved, deteriorated or remained broadly stable.

Think of the market as an evaluating machine. Every new event and every update of a probability will influence the multiple.

The whole aim will be to ask: “Is the development of the business good? Is the development of the price consistent with this development in fundamentals?”

The evolution of the multiple will follow four levels: the company, the sector, market factors and the market.

• Company: for example, the CEO dies or becomes involved in legal cases (or even extramarital affairs that constitute a threat to US national security, to tie in with current events).

• Sector: if your company has lost 25% while its sector has fallen 30%, the reading is different from that of a company that loses 25% while its competitors advance.

• Market factors: some companies move together independently of their sector. Investors may, for example, abandon growth stocks in favor of value stocks, or favor large-cap companies. Momentum also plays a role and is a well documented pattern amongst investors.

• Market: the whole equity market tends to move together according to interest rates or financing conditions.

The evolution of the multiple can encompass all four at once, for example:

• Less favorable growth expectations.

• Deteriorating profitability prospects.

• An increase in risks.

• A rise in interest rates.

• An initially too-demanding valuation.

• A price that has been falling constantly for six months.

As mentioned in my stock analysis article, we are dealing here with pricing, which consists of assigning a price relative to alternatives, such as competitors’ prices or another yardstick. Valuation seeks the intrinsic value of the company, without taking competitors’ valuations into account.

5. What can we really conclude? Luck, skill and learning

Time will make it clear

In practical terms, you will assess fundamentals, then see whether the multiple is consistent.

It is the investor’s whole skill to judge between fundamentals and price, and whether there is an asymmetry between the price (which contains an implicit risk) and the opportunities.

The central hypothesis of investing consists in finding a valuation error and then waiting for the market to correct it and thus join you later in your analysis.

The key to investing is time, because it is time that will prove you right or wrong, and separate luck from talent.

We take a position on a future that may or may not materialize.

I cannot give you a framework for analyzing your portfolio in just a few words.

That is why the objective of this article is to get a first grasp of fundamentals and the evolution of the multiple, to gain clarity and so that you can form an opinion.

In general, here are also a few points to take into account in your study.

Beware of hindsight bias

I come from the world of project management, where studying cognitive biases is an essential part because they influence the decision-making process. There is one that is particularly interesting for lessons-learned reviews: hindsight bias.

It consists of regarding an event as predictable once it has happened. We see the day when the signal appeared and has been visible ever since.

How can you protect yourself against a cognitive bias? Knowing it exists is a first protection, which you can improve by keeping a record of the hypotheses and risks identified before the investment.

The cost of learning

Your experience must also be taken into account.

In my Investing 101 series, I distinguished three stages in an investor’s journey: the learning phase, the transition toward a target portfolio, then the maturity phase.

If you start your journey as an investor, beating the S&P 500 is not necessarily your first objective, and making mistakes is unavoidable. These are your tuition fees on the market.

But I would even add that this mindset and this practice of investing will be useful in your professional projects by giving you an owner mindset, and will allow you to become better in your projects, whether in entrepreneurship, real-estate purchases or other endeavors.

6. Analyze your portfolio with AI

The method we have just seen can be applied to your own portfolio or individual stocks.

Here is the prompt ready to copy, available for free subscribers. I suggest copying and pasting it and adapting it to make a document ready to use with your AI. Or download this article, so you can ask your AI to execute the prompt and make you the same kind of picture.

Subscribe now

So I decided to go a step further, expanding the selection to include more companies, more market capitalizations, and more investment themes.

That’s why I created a watchlist of 209 companies, available for free subscribers.

Historically, stock-market wealth creation has been concentrated in a small minority of companies. Research by Hendrik Bessembinder found that the best-performing 4% of US-listed companies accounted for all net stock-market wealth creation between 1926 and 2016.

Many successful businesses share certain characteristics: strong market positions, leadership in niche markets, oligopolistic industry structures, or sustainable competitive advantages.

My goal is to identify companies with these characteristics and monitor them for potential investment opportunities.

You can now filter the watchlist by company size (large, mid, or small cap) and by investment theme, making it easier to discover businesses that match your investment interests.

Subscribe now

1. Eight investment themes to explore

Not all successful businesses follow the same model.

Some dominate their industries, others operate in highly specialized markets, while others grow by acquiring smaller competitors.

I’ve organized the watchlist around eight investment themes. A company can belong to several themes.

You can filter by any of these themes, or combine several to narrow your search.

The idea is to make discovering interesting businesses easier, without limiting yourself to the same well-known stocks.

Share prices and current P/E ratios are updated through Google Finance.

Of course, the watchlist doesn’t include every successful business.

I’ve deliberately excluded some well-known companies because I’m not convinced by their long-term prospects or competitive advantages.

For example, Visa and Mastercard are absent for reasons I discussed in a previous article.

I won’t go through every exclusion here, but the idea is simple: a company’s past success doesn’t automatically make it an attractive investment for the future.

The watchlist reflects my own research and convictions, and I’ll continue refining it as businesses and industries evolve.

2. Finding the right price: what Microsoft taught me

Finding a great business is only half the job. The price you pay matters just as much.

For each company, I’ve checked the lowest and highest P/E ratios over the past 10 years.

A visual ruler shows where the current P/E stands between these two historical extremes.

This makes it possible to scan hundreds of companies and quickly spot those trading near their historical valuation lows or highs.

Let’s look at a few examples:

The table shows Automatic Data Processing trading closer to its 10-year P/E low than its high, while Booking is below its historical low (shown in green). Bentley Systems is toward the upper end of its range, and Bloom Energy is above its previous 10-year P/E high.

With this simple visual comparison, you can quickly identify companies whose valuations deserve a closer look.

Here’s how I used this information in practice.

In June 2026, I noticed that Microsoft was trading near the bottom of its historical valuation range.

That observation prompted me to investigate further, leading to my Microsoft deep dive, published on June 30, 2026.

Since then, my position has gained 46% (as of November 5, 2026).

Of course, a company trading near its historical P/E low isn’t necessarily undervalued. Its prospects may have weakened, or its earnings may temporarily distort the ratio.

But that’s precisely the point.

The watchlist doesn’t tell me what to buy. It helps me identify what deserves further research.

3. Momentum: avoiding falling knives and FOMO

Valuation isn’t the only factor I monitor, because a company can look historically cheap and continue falling for months. Conversely, a stock that has already risen substantially can attract investors who fear missing out.

That’s why I’ve also included a momentum indicator.

It compares each company’s share-price performance with the S&P 500 over 7, 30, 90, and 180 days, producing a score between 1 and 5.

• Below 2: Weak relative momentum. The stock has significantly underperformed the S&P 500. This can be a warning sign and calls for further research before trying to catch a falling knife.

• Above 4: Strong relative momentum. The stock has significantly outperformed the market. This is a reminder to check whether enthusiasm has pushed its valuation too far.

• Between 2 and 4: My preferred momentum range. It helps me avoid the extremes of relative underperformance and outperformance when looking for potential entry points.

The aim isn’t to predict short-term price movements or mechanically time the market.

It’s to introduce another layer of discipline into the investment process.

Historical valuation helps identify potentially attractive prices. Momentum helps put recent market behavior into perspective.

Together, they help me prioritize which companies to investigate next.

4. How to access the watchlist

The watchlist is available to all my subscribers, including free subscribers.

You don’t need a paid subscription to access it.

Simply subscribe to ORIACON for free.

Read more