The Full Portfolio Construction Walkthrough

First published 26 Aug 2026 · Last verified 29 Aug 2026

Every part of this book has been building toward a single, ordinary moment: a person sits down with a notebook, a bank statement, and a list of companies traded on the Nepal Stock Exchange, and decides what to actually buy. Not what to buy someday. Not what looks exciting this week. What to buy now, in what amounts, and why.

This chapter follows one such person through that moment, start to finish. Her name is Sunita. She is not a real person — she is a composite built from the kinds of investors this book has been written for — but every number in her portfolio, every rule she applies, and every mistake she avoids comes directly from the chapters that came before her. Part XVII has given you a constitution (Chapter 95), a set of allocation and diversification principles (Chapters 59 through 62), a maximum drawdown discipline (Chapter 97), and a maintenance routine (Chapter 94). This chapter is where all four are used together, on one portfolio, in one sitting. Consider it the closing exam for everything the Investment Constitution and Personal Operating System have taught you.

Lesson 100.1 — Sunita's Constitution, Revisited

Sunita is 34. She works as a staff nurse at a hospital in Kathmandu. Her husband, Ramesh, has worked in Qatar for six years, and a portion of what he sends home every month — after rent, after her son's school fees, after the family's living costs — has been quietly building up in her bank account. Two years ago, after reading about NEPSE for the first time and after a cousin lost a meaningful sum chasing a hydropower IPO on a tip from a WhatsApp group, Sunita decided she would do this properly or not at all. She wrote an investment constitution, the way Chapter 95 described: a short, plain document that states why she is investing, how long she can leave the money alone, how much loss she can absorb without panicking, and what rules she will follow no matter what the market is doing on any given day.

Her constitution, trimmed to its essentials, says the following. Her goal is to build a second source of family income over fifteen to twenty years, separate from her salary and separate from Ramesh's remittances, so that when he eventually stops working abroad the household is not solely dependent on her hospital pay. Her time horizon is long — she does not need this money for at least ten years, and ideally will still be adding to it twenty years from now. Her risk tolerance, stated honestly rather than aspirationally, is that she can watch her portfolio fall by 20 to 25 percent in a bad year without selling in a panic, because she has seen NEPSE do this before and understands it is not the same as losing the money permanently. But she also knows, from watching her cousin, that she cannot stomach watching a single stock she is heavily exposed to fall by half in a matter of weeks. That distinction — tolerating a diversified, broad decline versus tolerating a concentrated, company-specific collapse — is the single most important sentence in her constitution, and it is the sentence that will do almost all the work in this chapter.

Her constitution also states three standing rules, carried over almost word for word from Chapters 95 and 97: she will never let a single stock become large enough that a severe, plausible worst-case decline in that one stock could cost her more than a fixed, small percentage of her total portfolio. She will never let a single sector — meaning a group of companies that tend to rise and fall together for the same underlying reasons — grow beyond a fixed ceiling of her total portfolio. And she will review the whole portfolio on a fixed schedule rather than whenever the market is exciting or frightening.

Before this chapter, Sunita had these principles written down but had never applied them to actual money. She had roughly 12 lakh rupees sitting in a savings account, separate from her emergency fund, which she had already set aside in a different account entirely and does not touch for this exercise. One lakh, for readers unfamiliar with the term, is 100,000 — so 12 lakh is 1,200,000 rupees, or 1.2 million. That is the number this whole chapter works with. Nothing in what follows should be read as a recommendation of specific companies; every holding named below is invented for the purpose of this walkthrough. What is not invented is the method.

Lesson 100.2 — Turning Principles into an Asset Allocation

Asset allocation, as Chapters 59 through 62 explained, is simply the decision about how to split money across broad categories before you ever pick an individual company. It is the architecture of the house before you choose the furniture. Sunita's first allocation decision is not about which bank or which hydropower company to buy — it is about how much of her 12 lakh goes into NEPSE-listed equities at all, versus how much stays outside the stock market entirely as a cushion.

Because her time horizon is long and her stated tolerance for a broad market decline is reasonably high, Sunita decides that 88 percent of this 12 lakh — roughly 10.56 lakh — will go into a diversified basket of NEPSE-listed companies. The remaining 12 percent, about 1.44 lakh, will sit inside her brokerage-linked bank account as cash, not invested in any single company. This is not the same as her emergency fund, which is a separate pool held for job loss or medical crises and plays no role in this exercise. This 12 percent is what Chapter 62 called dry powder — cash held deliberately inside the investing plan, ready to be deployed when individual companies or the whole market becomes cheap, rather than sitting fully invested at all times regardless of price.

Within that 88 percent equity allocation, Chapters 60 and 61 introduced the idea of a core and satellite structure. The core is the portion of the portfolio built from larger, more established, more liquid companies — the ones with long operating histories, steady dividends, and lower odds of a sudden, company-specific collapse. The satellite is a smaller portion built from companies that carry more upside but also more company-specific risk: newer businesses, smaller market capitalisation, more cyclical earnings, or exposure to a single project or a single monsoon season. Sunita sets her core-to-satellite split at roughly 65 percent core, 35 percent satellite, measured against her invested equity sleeve rather than her whole portfolio. This is a personal number, not a universal law — a more conservative investor might run 80/20, a more aggressive one 50/50 — but it must be decided before individual companies are chosen, because it will act as a ceiling on how adventurous the satellite half of her portfolio is allowed to get.

Sunita's allocation, restated in plain terms, now looks like this: roughly 10.56 lakh in NEPSE equities, split further into a core of about 6.9 lakh and a satellite of about 3.7 lakh, and roughly 1.44 lakh in cash reserve. The next lesson decides which sectors that equity money is actually allowed to touch.

Lesson 100.3 — Choosing Sectors Without Doubling Up on the Same Risk

This is the lesson where Part XVI's case studies stop being someone else's cautionary tale and start shaping Sunita's own decisions. Chapters within that Part described investors who believed they were diversified because they held six or seven different company names, only to discover that all six or seven rose and fell together, because they were all really the same bet wearing different tickers. The most common version of this mistake on NEPSE involves hydropower and tourism. On the surface these look like unrelated industries — one generates electricity, the other hosts trekkers and pilgrims. But both are unusually exposed to the same handful of shocks: a poor monsoon or an early, harsh winter can simultaneously reduce river flow for run-of-river hydropower plants and disrupt trekking seasons; a major external shock — an earthquake, a regional travel disruption, a border or supply issue — tends to hit tourist arrivals and large infrastructure projects at the same time, because both depend on foreign visitors, foreign contractors, and smooth cross-border logistics. An investor holding four hydropower companies and two hotel companies, thinking she has six positions, may really have one position: bet on a good year for weather and travel.

Sunita takes this lesson seriously in a specific, practical way. First, she decides that hydropower and hotels-and-tourism will not both appear in her portfolio at meaningful size. She chooses to hold a single, modest hydropower position and to hold no tourism stock at all — not because tourism is a bad industry, but because she has already decided hydropower earns a place in her core-satellite structure, and holding both would mean doubling her exposure to the same seasonal and external-shock risk under two different sector labels. This is a deliberate zero-weighting, and she writes the reasoning down in her notes, because Chapter 94's routine will ask her, every quarter, to reconfirm rather than forget why a sector is missing.

Second, she gives herself a personal ceiling for hydropower that is tighter than her general sector ceiling. Her constitution's standing rule caps any single NEPSE sector at 20 percent of her total portfolio. But for hydropower specifically — precisely because of the correlation risk above, and because a single hydropower company's output can be knocked around by transmission line constraints, license renewals, or a single bad monsoon in a way that a diversified bank's loan book usually is not — she sets a personal sub-ceiling of 10 percent, half her general sector cap. This is the kind of self-imposed, more conservative rule that a written constitution makes possible: it is decided in a calm moment, in advance, rather than negotiated in the middle of an exciting IPO announcement.

Third, she looks for sectors that are genuinely driven by different underlying forces, not just different names. Commercial banks and development banks both move with the same NRB monetary policy cycle — when the central bank tightens liquidity or raises the policy rate, both groups feel it through slower credit growth and thinner interest margins, even though one lends to larger corporates and the other more often to local and cooperative borrowers. So Sunita treats banking and development banking as related enough to share one combined ceiling, even though NEPSE lists them as separate sectors. Life insurance and non-life insurance, by contrast, are driven by different things — a life insurer's fortunes track long-duration savings and mortality assumptions, a non-life insurer's track claims from vehicles, property, and crops — so she is comfortable holding both without treating them as one bet. Manufacturing and processing companies that sell everyday consumer goods tend to move with domestic household spending and raw material import costs rather than with the stock market's mood, which makes them a useful counterweight to the more sentiment-driven banking and hydropower names. A trading company gives her exposure to import volumes and consumer demand through yet another channel. And a diversified, professionally managed mutual fund — a pooled investment vehicle, regulated and listed on NEPSE, that itself holds a basket of many companies across sectors — gives her instant, low-effort diversification inside a single line item, which is useful both as a core holding and as a check against her own individual stock-picking blind spots.

With this thinking done, Sunita has her sector map: Commercial Banking and Development Banking together capped at 20 percent of the total portfolio; Life and Non-Life Insurance together capped at 15 percent; Hydropower capped at a self-imposed 10 percent with zero tourism exposure; Microfinance, Manufacturing and Processing, Trading, and a diversified Mutual Fund each held as a single meaningful position; and her 12 percent cash reserve sitting outside all of it. Only now, with the architecture decided, does she move to choosing amounts for individual companies.

Lesson 100.4 — Sizing Every Position Against the Drawdown Rule

This is the lesson where Chapter 97's maximum drawdown discipline earns its keep. A maximum drawdown rule, as that chapter explained, is a decision made in advance about the largest peak-to-trough loss an investor is willing to let any single event inflict on the total portfolio. It is different from a sector cap, which limits a whole group of related companies; a position size limit governs one company at a time, and it exists because even in a well-run, well-regulated market, individual companies can suffer sudden and severe declines — a fraud discovery, a regulatory penalty, a failed project, a collapsed merger, a scandal — that no amount of sector-level diversification protects against.

Sunita's constitution states her personal drawdown budget this way: she does not want any single holding, even in a genuinely severe, low-probability scenario, to be able to cost her more than 6 percent of her total portfolio's value in one event. To turn that budget into an actual position size limit, she needs one more number: a realistic estimate of how far a single NEPSE-listed company can plausibly fall in a genuinely bad, but not impossible, scenario. Looking at past cases of companies hit by scandal, regulatory action, or business failure, she settles on 50 percent as a sober, non-alarmist estimate of a severe single-stock decline — not a total wipeout, which is rarer, but a serious, headline-making collapse.

The arithmetic is then simple division: her maximum position size, as a percentage of total portfolio, equals her drawdown budget divided by the worst-case single-stock decline she is planning for. Six percent divided by fifty percent equals twelve percent. That is her ceiling — no single company, however much she likes it, may exceed 12 percent of her total portfolio at the moment she buys it.

Notice what this worksheet actually does. It does not tell Sunita which companies are good or bad — that is a separate question, involving fundamentals, valuation, and everything else this book has covered elsewhere. It tells her, for any given conviction level, the largest amount she should ever let one holding grow to, so that being wrong about any single company cannot do more damage to her family's savings than she decided, in a calm afternoon, she was willing to absorb. Notice also that for the mutual fund, the formula alone would allow a very large position — because a diversified fund is inherently less likely to suffer a single catastrophic collapse — but Sunita chooses not to lean on that math fully, because concentrating a fifth of her whole portfolio in one product, however diversified internally, would undermine the very independence between holdings she is trying to build.

Lesson 100.5 — The Complete Portfolio, Laid Out

With her allocation architecture from Lesson 100.2, her sector map from Lesson 100.3, and her position-sizing ceiling from Lesson 100.4, Sunita is ready to fill in actual company names and actual rupee amounts. The names below are entirely invented for this walkthrough — they are not recommendations, and no resemblance to any real listed company is intended. What matters is the structure they sit inside, which is built from real principles this Part has taught.

A few things are worth pointing out about this finished table before moving on, because they are exactly the checks Chapter 94's ongoing routine will repeat every quarter for the rest of Sunita's investing life.

First, no single holding exceeds 12 percent, which was her maximum drawdown-derived ceiling. Him Ganga Bank sits right at that ceiling, which is a deliberate, not accidental, choice — it is the one holding she has the most conviction in and the longest history of following, so she is comfortable letting it use the full amount her own rule allows, rather than leaving room unused out of vague caution.

Second, no combined sector exceeds its cap. Commercial and development banking together total 20 percent, exactly at the ceiling rather than over it. Insurance totals 15 percent, exactly at its ceiling. Hydropower sits at 10 percent, at its tighter, self-imposed sub-ceiling, with tourism at a deliberate zero. This is not a coincidence; it is the result of designing the sector map first, in Lesson 100.3, and then fitting company choices inside it, rather than picking companies she liked and discovering the concentration problem afterward.

Third, the core-satellite split from Lesson 100.2 roughly holds. Adding up the core-labelled rows — the two banks and development bank, both insurers, the manufacturer, and the mutual fund — comes to about 53 percent of the total portfolio, with hydropower, microfinance, and trading making up the satellite portion at about 25 percent, and cash making up the remaining 12 percent outside both. The proportions are not perfectly identical to her original 65/35 equity-sleeve target once cash is folded back into the picture, which is normal — the sector caps and position limits are the harder constraints, and the core-satellite split is a planning guide, not a rule enforced to the decimal point.

Fourth, and this is easy to miss in a table full of numbers, every single row has a one-sentence reason attached to it that refers back to something other than "this stock looks good right now." That sentence is what turns a list of tickers into a portfolio. If Sunita cannot state, in one sentence, why a holding is sized the way it is and why it belongs next to the other holdings around it, Chapter 94's routine will treat that as a flag worth investigating at the next review, regardless of how the share price has behaved.

Lesson 100.6 — Running It Going Forward: The Routine Takes Over

Building the portfolio in Lessons 100.1 through 100.5 was the easy part, in the sense that it happened once, in a single sitting, with no market noise pulling at Sunita's attention. Keeping it aligned with her constitution for the next fifteen or twenty years is the harder, longer part, and it is exactly what Chapter 94's routine was built for. A routine, in the sense that chapter used the word, is a fixed, pre-scheduled set of actions performed on a calendar basis rather than in reaction to headlines, tips, or price swings — the investing equivalent of a hospital's shift-change checklist, run the same way whether it has been a quiet week or a chaotic one.

Sunita's routine, adapted from that chapter to her specific portfolio, has four fixed parts. Once a quarter, on a date she has already put in her calendar rather than a date she picks based on how the market feels, she recalculates every position's current percentage of her total portfolio, because share prices move even when she does nothing, and a holding that started at 10 percent can drift to 14 percent purely through price appreciation, silently breaching her own position limit without a single new purchase. Once a quarter, she recalculates every sector's combined percentage the same way, since sector drift is exactly how the hydropower-and-tourism trap described in Lesson 100.3 quietly reappears even in a portfolio that was correctly diversified on day one. Once a year, she rereads her written constitution in full, out loud if it helps, and asks whether anything about her actual life — her income, her family's needs, Ramesh's plans, her own risk tolerance — has genuinely changed enough to justify changing the constitution itself, as opposed to changing it because a bad quarter made her nervous. And whenever new money arrives — a portion of Ramesh's remittance set aside for investing, a bonus, an annual increment — she runs it through the same sector map and position-sizing worksheet used to build the original portfolio, rather than simply adding it to whatever holding is currently most talked about.

When her quarterly check finds a holding or a sector that has drifted meaningfully above its cap, Sunita's rule is to trim it back toward, not necessarily all the way to, its target — selling a portion and either adding to an underweight holding elsewhere in the portfolio or letting the proceeds sit briefly in her cash reserve until the next deployment decision. When a holding has drifted below its target because the company's fundamentals have genuinely weakened rather than because its price has simply been volatile, her rule is to treat that as a signal to revisit the original one-sentence reason for owning it at all, and to be willing to exit entirely rather than mechanically topping it back up. This distinction — rebalancing because of price drift versus reconsidering because the underlying business has changed — is one Chapter 94 spent considerable time on, precisely because the two situations look similar on a portfolio statement but call for opposite responses.

There is one more piece of Sunita's ongoing routine worth naming explicitly, because it closes the loop back to where this chapter began. Her 12 percent cash reserve is not meant to sit untouched forever. Chapter 94's routine gives her a simple, written trigger for using it: if a holding she already owns and already understands falls by a defined amount — say, 15 percent or more — without any accompanying deterioration in the reason she originally bought it, her routine allows her to deploy a portion of the cash reserve to bring that position back toward, but never above, its capped size. This turns a market decline from a purely frightening event into a partially useful one, without ever requiring her to abandon the position limits from Lesson 100.4 in the excitement of a perceived bargain. When the cash reserve is used this way and eventually falls below a minimum threshold she has set — say, 5 percent of the total portfolio — her routine directs new remittance-funded contributions back into cash first, rebuilding the reserve, before any of it is deployed into new positions.

Seen end to end, Sunita's portfolio is not a clever stock-picking exercise. It is closer to a small, well-run institution with its own written charter, its own risk limits, and its own maintenance schedule, applied by one person to her own family's savings. The constitution from Chapter 95 told her why she was doing this and how much pain she could bear. The allocation logic from Chapters 59 through 62 told her how to split the money into core and satellite before naming a single company. The correlation lessons from Part XVI's case studies told her which sectors were secretly the same bet wearing different names, and kept her out of the hydropower-and-tourism trap that had cost other investors dearly. The drawdown discipline from Chapter 97 turned her tolerance for pain into an exact ceiling on any one position. And the routine from Chapter 94 is what will keep all of the above true not just on the day she built it, but on every ordinary Tuesday for the next twenty years, long after the excitement of building it has faded into simple, repeated habit.