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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
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
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.