Is it me or is it incredibly difficult to buy more of what you previously bought after they have gone up?
I try to get away from market prices and just assume I’m paying X for the business…but still, its very hard to pull the trigger on a stock that has gone up…I think they’re testing my patience…
I think you have to be dispassionate about it. Buy as long as it is at or under your determined entry point. This is of course assuming that there is a substantial margin of safety between entry and intrinsic value.
i am having trouble taking myself out the market…i got a screen flashing prices in front of me all day…at first i was ignoring it, but i’m slowly being drawn into mr. markets tricks like a john to a whore…
This is where portfolio construction comes in. You should be reinvesting dividends in any case, at least on a portfolio-wide basis, if not on a stock-by-stock basis. If you have extra cash and your portfolio doesn’t look like it’s risky enough for your taste, then you have to allocate to whatever asset(s) look most undervalued. So if A goes up and B is more undervalued, put cash (or reinvestment income) into B. Frank, what’s your sell discipline rule? I know if you do G&D, you are buying a business and expecting to hold it for a long time, but presumably one of two things is going to happen: 1) at least one company you buy is eventually going to get into trouble (unexpected things happen), or 2) you’re going to come across a really great opportunity, but all your capital is allocated. Do you have rules or a strategy for making those decisions?
Do you Bchadwick? I’d be keen to hear some.
i always opt for DRIP plans whenever possible. I don’t understand what you mean “portfolio doesn’t look like its risky enough”. every security I buy to me is low risk with my desired return, key for me is no permanent lost of capital. i hold cash when I don’t have any ideas. in terms of a security being too big in the portfolio after a run up or something, I haven’t had that issue yet (limit is 20% of portfolio). Selling for me is way more difficult than buying. I sell under 3 circumstances 1) mistake made on company 2) more attractive opportunity comes up 3) the stock has reached a level which I feel is wayyyyy too high. i operate under the premise that i will hold the security forever (ok, 10 years), so I don’t look to sell unless i absolutely have to. doing this helps me focus on the buying decisions. i’m currently 15-20% in cash after in flows during the new year, so I’m looking for something good. I presume given what I’m seeing I will have to wait a few more months (looking at Seimens etc and some other names I hold to add more).
You should be extra picky if you only have 20% in cash. That’s only good for one investment really.
yupe…exactly why I am taking forever as usual…i was hoping to add to my earlier names cause i know them already but like my original dilemma, don’t want to buy what has moved up with the market…this is why i love falling markets…
You know this situation is perfect for selling puts. So for example, what I’ve been thinking about is “I want to buy BRK.B at 60”. So I would sell a put with a strike at that price you want to buy, Brk being an example. That way you make money either way. This strategy is made for increasing exposure to stocks you already own.
damm…that is a good idea…i got to start thinking more about portfolio strategy as Bchad has rightfully pointed out…i hardly ever think of this stuff…thanks…
I consider volatility in my weighting decisions. If something becomes more volatile, I reduce its position size, but my view on the asset may still be more or less the same. This works as long as there isn’t a correlation between how volatile something is and my ability to make a good call on an asset, this helps me apply my skills as evenly as possible. If I am better at judging high volatility or low volatility assets, then I have to make a correction based on that. Personally, I don’t think I’m better at high volatility or low volatility assets, so I’m comfortable with this method. I’m not a G&D investor, but if you are, then volatility should be more-or-less uncorrelated with your ability to judge value. Perhaps it helps you identify a trade opportunity, because wide swings are more likely to be over/undervalued at times, but it’s probably independent of your ability to judge the intrinsic value itself. So using volatility to weight assets seems pretty sensible, and it would also suggest that you will want to rebalance occasionally. Long only portfolios with low turnover rates probably don’t need to be rebalanced more than once per year, except when something is being added or removed from the portfolio. Now comes the question of what to do when your undervalued stock becomes overvalued. If you follow the Buffet line, you shouldn’t care. You bought a good business at a good price, and so you’re just riding the earnings growth until the Rapture comes. In my book, if something is overvalued, it’s potentially on a get-rid-of-it list. But I consider technicals and momentum before doing that. Just because it’s above intrinsic value does not mean it can’t go higher, and there’s no telling how high it can go. So the sell signal for me is a combination between overvaluation and downward momentum. That’s a controversial topic. Personally I want to examine a strategy that might say: sell 1/3 when you reach fair value. Sell 1/2 of what’s left (i.e. another third of the initial position) when it meets some quantitative level above fair value or returns to fair value, and sell the remainder once the total profit is down 10% from maximum. Although it’s easy to describe, it’s tougher to test. This is totally non-kosher from a G&D point of view, because it trades stocks rather than buys companies, but the truth is that you can’t please hot classy babes on paper profits. Eventually, you must sell something to realize a gain. And undervalued companies are supposed to become fairly valued companies, right? That’s the whole point of value investing. What do you do then if you want to outperform? You’re not going to outperform an index portfolio with just a portfolio of fairly valued companies. So once you’ve gotten there, you might as well sell them and buy the index. Unless you have located some other value opportunity, in which case you are going to want to sell what’s fairly valued and buy the new undervalued stuff.
i’m not at all concerned about volatility at this point though i’m not managing public money…to me, it makes zero difference if the stock moves up or down…however, if a stock tanks, i normally do more research on the name to make sure my thesis is still intact… as to your algorithm, it might lead to something… personally, i don’t have that sort of bent to derive a mathematical formula for when to do things aside from the very basic like limit your exposure to 20% max. I’m not per se a “value” investor buying an asset that is cheap strictly on quantitative basis…i copy munger’s model really…i won’t write out his ideas but i’m sure you can understand them as they’re very basic…
I generally don’t add to positions after I have established them, so your original question doesn’t really apply to me. My portfolio is not large enough yet for me to want to do that. I am more concerned with building a diverse and well performing portfolio. My issue right now is that the market is just so fcuking volatile that I have 2 stocks that are up a good amount in the past 5-6 weeks and I wonder if I should take some profits. One position is up 17% since mid January. As a belief, I generally don’t like market timing but in the past 6 months it has worked shockingly well for me with me winding up on the right side of a 10-12% move each time. Thanks Europe!
depends on what you bought. 17% up for certain sectors is not a lot (financials) so it might still be undervalued…
Reallllly glad I didn’t take profits. That stock I was referring to popped 15+% on earnings today!
that’s awesome…15% is my annual return objective. what stock might this be?
CSTR? One of my favorites. Don’t own it anymore, but still root for it.
Yep, its CSTR. this is the 2nd time I’ve owned it too, both times owned it up through its 52 week range. It’s a volatile, but somewhat predictable stock IMO. I’m up 40% since purchase last month, so I think I’m out today to lock it in and re enter again lower.
good work…i think one of the value managers i follow (tilson or chou) also has a huge position. what is the story on this one anyways? i thought they were suppose to get killed by Netflix…
Chou? Are you referring to Jim Chuong?