Cash and portfolio rotation

This short note went out to subscribers recently

You may have noticed that we have been churning the portfolio – selling down old positions and replacing them with new ones, but have not utilized the cash. This has been on purpose as I want to dispassionately look at all our positions and exit those where I feel that the overall risk reward equation could improve by replacing it with something else.

In some cases, the expected returns of the new position may still be the same, but the company has more avenues of growth and has shown consistent performance in the past. In effect the risk profile is lower for the new company. So, the rotation is not always to improve the returns, but often to reduce the risk of the overall portfolio too.

I have harped on the aspect of risk since last year and we were early on it. This will always be the case. No one can predict when the market will turn. Those who claim to do so, are lying and delusional. The best mindset to adopt is to focus on the performance of your companies and ignore all the chatter in the market.

We now have over 30% cash in the portfolio which is slightly higher than the start of the year. I continue to look for new ideas and that is my focus for now. As a result, I have even delayed the half yearly note, which can wait for now.

As the market continues to fall, several good quality companies have started to become attractive and we will deploy our cash when I am comfortable with these companies. I have no idea when the current downturn will end – though I am sure it will eventually.

In the meantime, we could suffer quotational losses on our portfolio (based on the market price), which should not disturb us if the companies we hold continue to perform well. The stock price will eventually follow the earnings.

As I have said in the past, one needs patience to invest sensibly in the stock market. Add a lot courage and a sense of long term optimism to it now.
----------------
Stocks discussed in this post are for educational purpose only and not recommendations to buy or sell. Please contact a certified investment adviser for your investment decisions. Please read disclaimer towards the end of blog.