In my last post, I discussed about my fair valuation for buying and how it would be likely different than selling value. I tried to make a case that I would like to minimize my cost basis and maximize my sell price. Buying is easy because minimizing cost basis is under my control. Nobody can force me to buy high unless I want to do it, right? However, when it comes to selling I do not have any control. Like everybody else, I would like to sell high, but there has to be somebody willing to pay for it? And hence, it is little bit of subjective.
Furthermore, I identified three companies viz. HDFC Bank, Pidilite, and ABB, as stocks that I would consider as fairly valued for selling. OR likely to be tad over valued. I do not consider them to be extremely overvalued. In this post, I do not intend to discuss (or present an argument) what would I consider over priced or extreme overvaluation. No two people will come up with same conclusion. Continue reading rest of this article…
In today’s post, I am continuing my discussion on selling aspects for my long term buy and hold portfolio. To me, buying is always a very easy decision. Easy in a sense that I have few quantitative metrics and qualitative aspect that help me decide whether I should buy a given stock. However, I do not have such fixed metrics that tells me, hey buddy, its time to sell. For me selling is a very subjective process. I touched upon few guidelines that help me make a sell decision.
Discussing and presenting my thoughts on this blogs helps this subjective process. The comments and conversations I have with readers of this blog helps (or influences?) this subjective process. When I say influences, I mean influencing the thought process, and not directly sell a stock because my blog reader says so. Continue reading rest of this article…
It has been very close to a year I have been writing on this blog. Almost on all occasions I have discussed about buying and holding my position. I have said multiple times that I tend not to sell my positions. There have been multiple questions about why not book profits? Why not sell profitable positions and invest in other opportunities? Before I discuss on selling any positions, let me clarify, I do not blindly believe that buy and hold is holy grail for long term investing. I have no misconception about “not selling” any positions. In any system (eco-system, car, machines, or even our body), there are multiple elements and each have a role to play. Similarly, in portfolio management process, selling a position is also very important, and hence it cannot be ignored. In my process description, I have captured this part as ‘exit plan’. Continue reading rest of this article…
Two readers of this blog left couple of intelligent questions in comment section on some of the articles. Both of these questions relate to what I term as rebalancing the portfolio (or profit booking). I wanted to wait until I posted articles on TIPBlog portfolio update and risk analysis. I wanted to discuss these two questions in the context of TIPBlog portfolio. It will help better understand the re-balancing and profit booking processes.
You may have read earlier post that discusses risk analysis. I made a comment that the portfolio has overexposure on few stocks like ONGC, LNT, etc. I also mentioned that I will not be selling any partial shares to bring down allocation. Many use the term profit booking for partial selling.
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One of the most neglected aspect do-it-yourself investors is performing a realistic assessment of their portfolios. I have adopted a very disciplined approach to make sure I follow my quarterly regime of reviewing the progress. First step was to check out the status. Second step is to understand risk, and third step is to make changes (or execute or re-balance if necessary).
In earlier post, I presented the progress update of TIPBlog portfolio. The next step is to analyze risk in the context of my personal risk profile parameters. The objective of this risk analysis is to make sure that TIP portfolio is not exposed to any particular event, or company, or any other aspect that will affect portfolio performance.
My portfolio management process has a risk management process in which I try to:
- Maintain pre-determined asset class allocation;
- Maintain pre-determined diversification, any sector should not exceed 10%;
- Any single stock should not exceed 7% of the portfolio; and
- Dividends from a single stock should not exceed 5% of total dividend cash flow.
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Any investor investing for long term (i.e 10+ years) must use the principles of asset allocation and diversification in their portfolio management process. These are two aspects that help investors to manage risk of investments. This has been said many times, presented many times, and we individual investors still continue to make mistakes. On a personal front I have been guilty of it in recent past. Both asset allocation and diversification are two different aspects and hence they have different objectives. The primary reason individual investors get exposed to downside risk is because many are unable to differentiate between these two aspects.
Asset allocation is a strategy of allocating capital to different types of assets which are either non-correlated or at least have low correlation. The notion here is that, over time, the volatility in returns will smooth out if they have low correlations. The different types of assets that I am discussing here include, cash, government bonds, corporation bonds, common stocks, preferred stocks, real estate, private equity, natural resources, commodities, partnerships, etc.
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How to Execute Asset Allocation – Yale Fund Example
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