Every three months or so, I reassess the weighting of my stock holdings.
In the past fortnight I've bought and sold a number of stocks but have only exited one position altogether.
Whilst I hope to remain firmly in the long-term investing camp, maintaining a well-balanced portfolio is essential. But there's only a few reasons I'll change a position.
For example, when a higher-risk stock you hold grows exponentially in a short period of time, as this one did for me, you need to consider taking some profits off the table.
Conversely, serial underperformers, could be sold (and possibly bought again) to create a capital loss in a certain tax period.
Lastly, if a company has materially or structurally changed, you need to consider your position in it.
However, always remember Benjamin Graham's timeless words, "The market is there to serve you, not guide you." Use it to achieve your goals but don't let it make the decisions for you.
Buy, Hold or Sell?
The hardest part to any of this is knowing which stocks are a buy, hold or sell. I am, like everyone, not always correct, but here are two S&P/ASX200 Index (INDEXASX: XJO) stocks which I think fall into each category.
Buy
Coca-Cola Amatil Ltd (ASX: CCL) and Rio Tinto Limited (ASX: RIO) are two companies whose shares are, in my opinion, firmly in the buy-zone. Despite their short-term headwinds I believe the ultra-long-term outlook for these two companies remains very good.
Hold
Telstra Corporation Ltd (ASX: TLS) and Australia and New Zealand Banking Group (ASX: ANZ) are my two favourite blue-chips stocks listed on the ASX. So far it appears I've made a mistake when I sold each of them in late 2013, however at the time, I believed their share prices moved above what I deemed fair value. Despite good results since then, I still think they're not a buy, but are worth holding through the next market cycle, especially whilst interest rates are so low.
Sell
I've never been good at making sell calls but I believe Westpac Banking Corp (ASX: WBC) and Qantas Airways Limited (ASX: QAN) are not worthy of my investment dollars at today's prices. Of course, if you've held Westpac for many years and value the steadily growing fully franked income above all else, then keep your shares. But if your margin of safety is only small (say, for example, you bought in higher than $28 per share) I don't think we'll witness any sustainable share price growth above today's already expensive prices. Qantas, with its tiny profit margins and wild earnings swings, is best left for day traders, not long-term investors in my opinion.
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Maintaining a well-balanced and diversified portfolio isn't easy but every investor should reassess their portfolio's shape at regular intervals. However it's vital to remember there is a difference between making smart investment decisions and panic buys or sells.
