Upgrading Your Portfolio
How do you feel when you look at your portfolio?
As you scan down the list of stocks you own, do you ever cringe that you still hold that one stock that has no hope of coming back? The one you wanted to sell months ago, but kept holding because it was below your purchase price? Yes, that one (or two or three).
Even though you haven’t sold the stock, the loss is real. I know this is hard to accept psychologically. But, the money is gone. You should be evaluating whether you would buy the stock today, if you didn’t already own it. If the answer is Yes, then keep holding. If No, it’s time to sell.
Remember, a stock doesn’t care what price you bought it at.
And neither should you.
The currency that drives good investment returns is Conviction
Conviction is challenged every day in the market.
As you scan your portfolio, which companies are you not worried about even though their prices have declined? These are the companies that have your conviction.
Now is a good time to sell the stocks that give you that “ugh” feeling, and replace them to upgrade your portfolio. Consider only holding (or buying) stocks where you have conviction. Own companies that have staying power, ones that you’re deeply convinced will come out stronger, not just after covid-19 passes, but two, three, five years from you.
Of course, first decide how much cash you want to have. Then with the remainder, consider upgrades.
On March 22 2020, I wrote that it was rational to buy some stocks. The market has bounced back more than 15% since then (this is no small feat - people are generally happy with such returns over the course of a year or two). But rallies in Bear markets can be ferocious. There is still no guarantee that stock prices won’t fall again. As I said, you need conviction to buy, and more importantly, to hold on afterwards.
Make A Buy-Shortlist
To build conviction, start with a buy shortlist. Make a list of the companies you may want to own. Then try to learn more about them, and work your way through them one by one, and decide whether you want to buy. That’s what I have been doing.
It has been, and continues to be, a good time to declutter and upgrade your portfolio.