Portfolio Management

Pruning & pondering

A busy week for me means a lack of posting on the blog and not a great deal of original research getting done, but that might well be a good thing. A chance to reflect on the companies I’ve looked at previously and the general position of the portfolio, which is a bit awkward at the moment – though at least it’s not because everything has fallen!

If you run a portfolio with many small caps you’ll probably have felt the rally recently. Small caps have done significantly better than the rest of the index (see chart below), which has roughly drifted around. I try to make a point of not reading market commentary on the reasons for short term market gyrations, since I’m not sure it actually does me any good as an investor. At a guess more than one journalist has used a headline roughly styled as ‘risk-on sentiment boosts small caps’! There’s a stale predictability that feels less like any actionable idea, worthy of note or interest, and more like a running commentary on a lot of noise.

I will therefore start my own short post on a lot of noise!

 The problem is basically one of a lack of perspective. Running screeners with similar criteria means I tend to get the same or similar companies popping up over and over as one event or another knocks them into my ballpark. At the same time, shares in my portfolio are appreciating, and I have the feeling that there must be somewhere to put the money – if only I could decide which opportunities were best. Looking at lots of similar companies means my watchlist of potential replacements has tended to rise with my portfolio. That’s not a great help to me –  if I preferred company X to company Y and they both appreciate 20%, it’s likely I still prefer company X to company Y. Neither look as attractive as at the start, though!

In reality I’m just berating my own shortcomings, though, because the answer is obvious – broaden horizons and look wider. It also means I need to sit down and re-evaluate the shares in my portfolio. Given the amount that’s been happening with them – most of them have moved quite a lot recently – and my relatively lax approach to actually keeping up with more than the big news (annual reports, interims etc.) , I think it’s probably about time I gave each of them a fresh couple of hours to bring me back up to date with their current valuations and how things have moved.

From there, I reckon – with all the facts in front of me – I’ll be able to do a little gardening and see what I’m left with. Then it’s on to phase two, when I decide where to put my money back in. My current interest list, then, in a sort of order – I write them as they come to me, so you can probably read something into my preferences from it..:

– Northgate
– Kier
– Impellam
– Dairy Crest
– Mothercare
– Marstons
– Phoenix IT

Actually, I suppose that’s a reasonably healthy ‘pipeline’ of potential investments. Phoenix IT is probably the most interesting because it’s the one which has most recently become ‘distressed’ and is hence, I guess, still in the thick of it. Impellam is still an enigma to me. The rest, if I remember correctly, have all risen recently to some degree. That doesn’t particularly bother me if prospects have improved, though, since it means I might still find them cheap relative to reasonable expectations for their performance.

Maybe things aren’t so dreary after all!

2 Replies to “Portfolio Management”

  1. UK Value Investor

    Hi EV

    You might want to try a predefined buying and selling schedule. I use one and find it makes my work much easier as I know what I’m supposed to be doing. Sell one month, Buy the next (of course the schedule depends on how many positions you want and what you want your average holding period to be). That way I don’t have to be clever or creative. However, most people I mention this to find the idea ‘stifles their creativity’ so perhaps you need to be an ex-computer programmer to like that sort of approach.

    John

    • Lewis

      Hi John,

      Thanks for the comment.

      Not sure about it. Sort of feel like it’s a little arbitrary – I want to sell when I think the stock is at fair value, which make take many months or may take a couple of weeks if I’m lucky. At the same time, there’s no shortage of evidence which suggests that investors tend to time their exits horribly anyway, so perhaps a more mechanical method would do better than I would otherwise!

      I have no particular attachment to my creativity, though. I’m curious to see which in practice actually works best, and that’s my only consideration!

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