In the past, when I hit a major downdraft in the market, I find myself debating whether I should reduce the number of positions in my portfolio, or shrink the mean position size. The latter is the easier choice, which is why I take the former, and shrink the number of positions, forcing me to eliminate marginal names in the portfolio.
Today I added to Nam Tai Electronics and Deerfield Capital, bringing my over all cash position down to 8%. As I work through my reshaping, I expect my cash level to decline further, but I would probably liquidate one of my 35 stocks without replacement to help fund the reshaping and rebalancing.
At times like now, this is a process that hurts, and sometime next week, I will announce my portfolio shifts. That said, the portfolio has held up better versus the market recently.
Full disclosure: long NTE DFR
This really has been challenging… I couldn’t possibly buy in smaller lots, but I have been spacing out my buys to average down more.
I wasn’t able to reply to your earlier post about what sort of metrics led to outperformance and put in a word for P/S. It looks like one less company will be showing up in my screens that use sales now that Blackstone took out Performance Food Group. It was comforting to see the market recognizing value… hopefully that will help build a bottom.
I have done both, David. I sold a couple of my more speculative positions, and lowered the target position size on a couple of my holdings. When I refer to speculative positions, I am really saying that these holdings were not at an acceptable margin of safety (which at the start of the week comprised about 10% of my portfolio).
The difference for me is I am raising cash. My cash level was around 6% on Monday, and is now closer to 10%. I would take this to as high as 15% as I think there may be better prices in the future.
That said, during the week I also added a little to my SSL position as it dropped to a level where I found value. Additionally, I sold my entire HAL position. My net energy exposure is a little less, but I am much more comfortable with the positioning (after HAL’s drop today, I see I was lucky).
I am not recommending these stocks, just using them as an example that, as you know, there are still opportunities to take small nibbles, even when one is raising cash.
Long SSL
Hi Brian… at what point do you anticipate buying? Is it based on general market level or are you looking for particular entry/rebalance points for particular companies?
I had higher levels of cash going into this correction (~20%), but have deployed a lot this week (down to ~8%)… particularly focusing on some momentum names that have corrected sharply (establishing positions in BGC, VRNM, UA and adding to small positions in CBI, FCX, CQP, BG, and CY).