Portfolio strategy/guideline

[GFG]

Keep your winners and sell your losers:

Hi buddies, I'm planning to sell my loser and want to buy more of my best winner to make it my core holding. However, I'm hesitant because it will dilute my unrealized gain (%) because I'm nearing my first 2 bagger experience. I am confident that this will still do better in the long run. Just like to ask your opinion, does the unrealized gain (%) matter to you just to have "multi-bagger" in your portfolio?

Now that's really an emotional way to look at things... not a good thing when it comes to investing.
$1 earned from a "2 bagger" = $1 earned from a "1 bagger" = $1 earned from picking up a coin on the streets
It is still a $1.

Unrealized gain or even previously realised gains shouldn't have any impact on your portfolio decisions.

Hmm. Not sure how it's emotional though. Just trying to rebalance my portfolio and focus on my winners. Anyway, thanks for that.

Hi
It's emotional cos you're hesitant to buy what you perceive to be a winner, just to avoid diluting your winner's return.
A decision whether to invest more into this winner should be based on current factors. What's the value currently, and what's the price U can get it at now? How does your unrealized returns in this company affect its future prospects, or whether your current investment will be a good one? It doesn't at all.
Your decision should not be affected by your previous investment, whether it's a multi bagger Win or even a multi bagger loss.
Admittedly, this is hard to understand and even harder to practice, I myself m not immune to being emotional.

For eg. Many studies have shown that ppl are more willing to risk losing "profits" from successful earlier investments, rather than lose the same quantum if there's no earlier profits
Reason being ppl perceive these profits as something additional.
Which is why I gave the analogy that a dollar earned in any way is = $1.

Yes, portfolio rebalancing is part of investing n managing capital. That's not the point I m making. What I m saying is simply that if "avoiding diluting the multi bagger return" is a factor in deciding whether you should invest more, that's definitely emotional.

"keep your winners and sell your losers"
Another point id like to share is that this phrase, which is over used, is also widely misunderstood

Yes, keep your winners as long as after your assessment, they r still likely to out perform any other investment opportunities you have in front of you.
Similarly, sell your losers if nothing material has changed and they are likely to continue underperforming.

But simply keeping winners n selling losers without any evaluation of their CURRENT price-value ratio just leads to buying high and selling low.

[Musicwhiz]

For eg. Many studies have shown that ppl are more willing to risk losing "profits" from successful earlier investments, rather than lose the same quantum if there's no earlier profits
Reason being ppl perceive these profits as something additional.
Which is why I gave the analogy that a dollar earned in any way is = $1.

This is known as Mental Accounting >> http://www.investopedia.com/terms/m/ment...unting.asp, also known as the "House Money Effect", whereby money tends to be compartmentalized into discrete "jars" based on how it was obtained.

http://www.investopedia.com/terms/h/hous...effect.asp

In theory, this seems silly because money is fungible and a dollar is a dollar no matter how it was obtained (i.e. whether it was "easy" or "difficult" to come by), but humans, being emotional, tend to segregate their profits and assume this is money which can be "lost" without too much distress.

[Temperament]

Things that come too us without any of our blood and sweat wiill not be appreciated. "Easy comes, easy goes". On the other hand, if we think of anything can happen to our capital in the stock market then we may really start to treasured the money we have made from investing. Now, i definitely do after a few of my blunders in the market with the profit i have gained from the markets.
What's that? Mental accounting? House money? My money?
This reminds me, "A fool and his money is soon parted"
So if a person breakeven in his casino endeavour, does he wins or loses some money? Or really breakeven?

[GiraffeValue]

Mine:

30% value
30% deep value
30% super deep value
10% cash.

[brattzz]

60% stocks

30% cash

It's a waiting game...

[BlueKelah]

Still have 40% cash after correction from 3500 level this year. Still waiting for sgx to correct more to buy.

sent from my Galaxy Tab S

[jjlim84]

so what's the allocation strategy after that?

1) if sti drops another 10%
Put in 10% cash to average down?

2) if sti rises 10%
Put in 10% cash too?

[BlueKelah]

so what's the allocation strategy after that?

1) if sti drops another 10%
   Put in 10% cash to average down?

2) if sti rises 10%
   Put in 10% cash too?

option 1) until STI rebounds significantly 

Usually any significant moves up and down will happen in a couple weeks or couple months very quickly with high volume generally speaking. So just cash out every 10%-20% on the way up as well to prepare for the next move down . Of course sometimes you may have a stock that you bought cheap and has increased 50% or 100% even or has become overvalued with no more MOS. In which case, would definitely sell to realise some profit and cash out even if the index may only have moved like 5%.


Keep in mind, a 10% rise in value is not the same as a 10% drop in value in terms of number. E.g 1000 -> 1500 (50% up) is not the same as 1500 -> 1000 (33.3% down) though both are 500 points difference. Also every year there will be some dividends adding to cash %. So allocation may have to be changed.

The index value at the last crash and bottom should be a good guide for allocation. This will ensure you have some bullets left to take advantage of depressed prices if the index falls to a value anywhere near the last crash.