Wednesday, January 11, 2012

Globe & Mail - When to Rebalance

I was quoted in an article about portfolio rebalancing.  For the complete discussion I had for this article and some additional discussion, see below.

When to rebalance, and when to avert your eyes

How do I monitor my portfolio?

I monitor my investment portfolio by active reading.  I read the financial news each day.  I also read a number of “good” financial blogs/websites.  Many of these provide raw economic data with minimal spin.  Most everything else on the internet is not worth reading.  Lastly I read the quarterly and annual reports of all of the companies I own and a number I don’t own.  I also read the financial reports of companies that I might buy. 

I also enjoy reading the Annual Information Form (AIF) for Canadian listed companies.  The AIF is a valuable source of information about a company’s business model, their recent history, and business risks. 

Valueline Investment Survey is another tool I use to get a really good condensed financial report on a company.  Most public libraries & universities have access to Valueline. 

On average I would say I spend between 10-20 hours per week reading about investments.  My passion is really two things, reading and investing.  I have never met an intelligent person who didn’t read a lot.  For me, I would much rather read a company report or a book than watch TV. 

What I find is that most individual investors are more interested in trying to make a quick buck than they are in the actual process of investing.  The process must include a passion for reading and specifically reading company reports.  If you love the process of digging deep for value you will love value investing.  If you don't, I wouldn't recommend investing for yourself as it will be a disaster. 

Lastly, I don’t spend a whole lot of time worrying about the daily stock prices of the companies I own. If you own a good company, the daily price fluctuations really don’t matter.  For instance, I bought Johnson & Johnson (JNJ) and General Electric (GE) this past year (for a family member).  The dividend yield worked out to just about 4% on the purchase price for JNJ and over 4% for GE.  JNJ has increased earnings for the last 15 consecutive years.  The only thing you really have to monitor is how much the earnings and dividends will increase next year.

How do you rebalance your portfolio?

I tend to hold a very concentrated portfolio.  Some of the companies I don’t ever intend to sell while some have been purchased because I believe the price is cheap.  I hold the cheap companies until they reach intrinsic value or a fair price for the company.  When they approach fair value I sell and wait for another opportunity.  Sometimes you recognize a mistake in your thinking regarding a company or it’s prospects have changed and you have to sell at a loss. 

I am not driven to have a fixed percentage of my investments in a certain sector.  If I rebalance it is only to buy something that is relatively cheaper than a current holding.  Looking back, often when I  reduced a successful company in my portfolio it was a poor decision.  Good businesses are good for a reason.   

One Final Thought...

I know this is counter productive for me (a writer of an investment blog) to admit but I will say it anyway because it's true...   If you think you will find a good stock tip on the internet you are only fooling yourself.   What I find truly amazing is that the number one google/bing search term for traffic to this blog is "top canadian investments for 2012".   Let me be blunt... This type of search will never get you the results you are looking for.  

You may then ask why I bother writing this blog?  It is mainly to interact with people who like me have a passion for value investing.  I have met numerous investors, analysts and portfolio managers.  For those interactions I am truly grateful.   

Best Regards,

Disclosure - Long JNJ & GE.

1 comment:

  1. Congratulations Kevin on getting another plug on the Globe. I see you are still overweight in US stocks. Good luck with that. As you know, I've completely left the US ship, including relinquishing my US citizenship.

    My spam collection is doing quite well. Cheers, your fellow blogger, Peter
    (Now let the insults fly ... )