Project of the Week, Part 1

I have a technique that I call “portfolio reshaping,” to go along with my better known practice of “portfolio rebalancing.” (Better known to those who read me, of course.  Rebalancings happen often, but reshapings are relatively new to me, and have been slowly developed over the last three years.)

Four times a year, I sit down to make major portfolio changes.  Typically, I swap out names that have appreciated versus their fundamentals and trade for names that are cheap versus their fundamentals.  The idea is to compare the entire portfolio versus all of the replacement candidates all at once to make the best shift in aggregate.  This takes the emotion out of the decision for two reasons.  Number one, there are a lot of candidates vying to get in.  Two, I forget who recommended the idea to me, so I don’t rely on authority, but on my own analytical ability.

The process starts with a 1-2″ stack of papers acquired since the last reshaping.  I enter each ticker into a spreadsheet.  Typically that takes an hour or so.  This is the beginning of the process.  As the week progresses, I will show you more of the process as it unfolds.  This will end up being an article for when it is done, but in a simpler and condensed form.