Evaluating Your Portfolio

Editor’s Note: Today, we have a holiday special edition of Penny Sleuth. Author Stephen T. McClellan gives some useful advice on embracing this July 4 as a time to reassess your portfolio. Enjoy…
 
Clean Up and Rethink Your Portfolio During Vacation
By Stephen T. McClellan
Author of Full of Bull
July 3, 2008
 

It’s almost the Fourth of July and vacation time beckons… When I think vacation, I think of distance or a relaxing change of venue like a beach resort. But when you are not inundated by everyday distractions…that is, the perfect opportunity to ponder your investment holdings. Reassessment and review in a disciplined manner is especially critical in December in order to make year-end investment changes that have tax implications. But on vacation this summer, along with my book Full of Bull (your required reading!), take your monthly brokerage statement and mull it over at the pool with a piña colada.

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Rethink your overall strategy or themes and shake off any emotional paralysis that has locked you into certain stock positions. Maybe your theme is stale; are there newly emerging trends to begin investing in? A market analyst I respect, Ray DeVoe Jr., terms this “liberation from the prison of past decisions.”
 
Some stocks may have attained too heavy a weighting for your peace of mind. However, this is where I disagree with most “experts” who advise periodic rebalancing by trimming back oversized positions. Your biggest winners that become the outsized positions in your portfolio are probably the last things you should contemplate selling. I prefer a higher weighting in my best investments rather than just a normal position. If you believe that prospects remain favorable for one of your most sizeable stock positions, buy more, if anything, rather than cutting back.

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Other stocks you own may have lagged for so long, it’s time to give up. Ask yourself, what is your comfort level or enthusiasm with each individual stock in my portfolio? There are tax considerations when taking gains; maybe there are losers to be used as an offset. A reticence to sell stocks that haven’t worked out — that is, to admit mistakes — is normal.  But by not selling your losers and moving on, you commit another mistake. Accept your failures, step up to the plate, and dump your junk so you can start afresh. It only hurts for a bit, and then you feel liberated.
 
After returning from vacation and if you have been out of touch with the stock market, financial news and the price changes in your holdings, don’t pull the trigger on any portfolio transactions on your first day back. First get up to speed and familiarize yourself with any investment news that you missed. Then if it still seems appropriate, orchestrate the needed portfolio shifts. This may be none or possibly one or two actions.
 
Always remember, you are an investor for the long term. The fewer transactions…the better. Don’t feel compelled to “do something.” The best decision is usually “do nothing.”

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Sincerely,
Stephen T. McClellan

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