Community

Share knowledge. Find answers. Ask questions.

Online Share Trading

Engage and learn about markets and trading online

Portfolio Management Theory

Reply
Not applicable
So, strategy question for all out there. If my portfolio becomes heavily overweight in one stock - thanks to a stellar run. Do you rebalance by taking profit, or do you let the winner ride, on the basis that winners stay winners. I am talking long term investments here, not trading.
0 Kudos
Reply
12 REPLIES 12
Super Contributor
I seem to remember Simon posting a webinar that looked at the fear of letting winning stocks run and run...I have sometimes sold half of a stock that has gone up 100%, Old mutual being an example. Bought at around 600 and sold half at around 1200....kind-of kicking myself now. I think for my investing I try to look at the dividend yield I get, and if that is consistent going forward, I tend to forget the % gain.
0 Kudos
Reply
Super Contributor
there is no "right" answer here>I have sold shares when they have doubled but normally when the div drops to below2%>I have also kept shares for decades that have continued to rise but that is because the dividend kept on rising as well-I need divs to live as this is how I support myself and my family-there is nothing wrong with taking profit especially in a market that is frothy-I currently have the biggest cash portfolio I have ever had and in the current market I am sitting on it.I feel safe with this approach.
0 Kudos
Reply
Super Contributor
This is a good question. I believe one needs to understand the business that these stellar running stock are about and if the business is growing and one can forecast that it will continue to grow then I would definitely not sell the shares. I have this situation with EOH and I also believe the share will continue to run for some time still because they're on the ball and growing by acquisition all the time. When the time comes that the business growth seems to slow down or comes saturated, maybe then its time to consider to reduce exposure, but not as the fundamentals and environment is conducive to growth.. I hope this makes sense? I am actually thinking of an investment product that would give these type of insights for people, do you think it could be something people enjoy reading?
0 Kudos
Reply
Super Contributor
What is the reference point to your question that determines when your portfolio is overweight - as in over weight "what" ? By value relative to the rest of my portfolio or by sector or what ? ( As in I have 5 stocks and now this one is 80% by value?) IF your portfolio replicates a typical( what is that ?) medium equity balanced fund then that would usually indicate a asset class and sector exposure for example... This ignores the fact that your basic question "is this a fair price for the stock" has still to be answered. This is giving me a headache. Time for coffee.
0 Kudos
Reply
Super Contributor
My experience with now managing my Dads portfolio, he is 88 now with impaired vision and hearing, but is still very astute, and his share his investments are north of R13 bars. He fell in love with his performers, one of which was BHP and and the others like the Kumba's of the world, and refused to, listen to me and lessen his exposure to these and the overweight other resource stocks he held. Anyway on a flat market this year...He is down R1,5 bar on his resource holdings alone. So yes....Do Do Do not become over exposed on your winners, but make sure that if you sell that you only get exposed to Capital Gain tax. My opinion.
0 Kudos
Reply
Super Contributor
More on my thoughts... one needs to really understand the business side of the company, not the financials and stock price, but the industry, environment, culture and so on, if you understand this you will be able to gain good insight into the operations and a good understanding if the company will continue to do well... I believe this is what the best long term investors in the world also do... Here's a quote from Warren Buffett - "“Diversification is protection against ignorance. It makes little sense if you know what you are doing.” Selling and rebalancing, in my view, might be negative to the incredible power of compounding!
0 Kudos
Reply
Super Contributor
I have lost more money by not selling when I should have, than I have lost buying to expensive.SOL,TBS,CPI,KIO,ZED,MTN to name a few. I am still making the same mistake with BRT,PSG etc. Do not get emotionally involved in a share. The fact that it has a name don't imply that it is lovable, unlike a pet!
0 Kudos
Reply
Regular Contributor
Sorry to hear about "Dads experience" - it can easily happen. The trick is that when losing...hanging on is often (normally) the wrong option - take the pain as early (even late is OK) as possible. If in doubt sell at least sell 50%. The theory of "rebound" doesn't actually exist either in shares or in life (ok - occasionally!).
0 Kudos
Reply
Super Contributor
I hear what you are saying, but I have to say by not selling I have made a considerable amount of profits on EOH and APN and WHL is on its way. I think the trick is to truly understand whats going on in the environment these companies operate in and while they're doing well, one should hold onto them. The problem is that people don't focus on the business but rather the share price and financials which are based on the past, then they fall in love with this and the future sometimes isn't so bright, e.g. resources have so many issues relating to wages, strikes, electricity issues and then they cannot even control their own selling price most of the time, their product is commoditised and lack power for negotiations then when cycles turn it causes issues that result in declines etc, one needs to try to forecast this, understand the market and maybe then one would decide to cut a position which is what you are suggesting or hold onto it, e.g. in the case of what should have happened on EOH, WHL and APN, NPN probably too. I think the problem is about the way investors look at shares, they don't see them as proper companies, but rather as some fluctuating number which they fall in love with. does this make sense?
0 Kudos
Reply
Super Contributor
Given his advanced years I do hope your father is dining each night with a bottle of BOLLINGER on the table - no point in not enjoying the fruits your labors - while it is easy to become emotionally attached to shares the discipline is not to do that - and the irony is that resources are cheap - but cheap for a reason. And prospects for the next couple of years == PGM's excepted (?) pretty modest to put it mildly.
0 Kudos
Reply
Super Contributor
taking the pain is the right thing to do. I was bought a carpet on a catalogue auction in Dublin - a stately home sale - the noble house of Wicklow. So as soon as I could I headed off with my rug to one of the best oriental carpet shops in South Dublin. In I proudly strode and rolled out the rug on the floor. The owner stood there silently watching. I had been there before - I had at the time noted that for an Irishman he was a pretty taciturn sort. What I also thought I had now detected as a slight hesitance on his part as he silently surveyed my purchase I put down to the dusty state of the rug ( - and maybe because I had inconsiderately decided to roll it out on top of a beautiful Isfahan carpet?). Either way ,and being in a hurry I simply gave him my details and asked him to have it cleaned. A week later I got a call. "I need to talk to you about THAT rug. You'd better come down to the shop". Off I hurried( I admit still looking forward to seeing its glorious colours and to being told that a wonderful providence had come to light so that it truly was a remarkable example of its kind). "Look, he said, this rug is rubbish - the colours ran when we did a test clean in the one corner - and frankly its not worth you even cleaning it." This was fairly forthright communication even for an Irishman. It must have been really bad. My face, also, must have betrayed my evident dismay. "Where did you get this rug?" he asked. He naturally knew of the sale and the vendor. "Oh" - it was a long drawn out sound- "Well you do know of course she had a lot of rubbish as well as good items?" ( Clearly I didn't.) "So what must I do now ?" I lamely asked. "Sell it. There is no point in keeping stuff like this. Its not going to be worth any more in 5 years time , just take the knock and move on." It was some of the best advice I have ever received. And I took it - it went on the next general sale , and of course it sold at a loss. But I moved on
0 Kudos
Reply