I wish I still had it…

I was reading through my investor diary  and decided to look at all the companies I’d sold in the last five years and consider whether I was glad I did or not. I’ve sold (or been forced out of) 32 companies in the last five years;

  • 26 were for a profit of between 5% and 54%.
  • Six were at a loss of between 22% and 95%.
  • One was a bankruptcy (Carillion in 2018).
  • One was a takeover (Hansteen in 2019).
  • One was a fund that was wound down due to lacklustre performance (JP Morgan Global Convertibles Income Fund in 2019).
  • Of 32 disposals, there are only five that I wish I hadn’t sold including the takeover.

So what do these statistics tell me? Firstly, that I’ve had fairly high turnover in the portfolio over the last five years but that was largely driven by increased activity in 2019 (over 65% of these disposals were in 2019).

Secondly, I’m fairly comfortable with my selling methodology – ‘regretting’ five disposals out of 32 isn’t too bad, and one of those was out of my hands. Having said that, it’s here that I want to focus my attention as all of these companies (bar the takeover which I can no longer track).

The defining feature of these companies is that they are all small cap shares which had a surge in price after I purchased them. I sold out to take a quick profit, thinking that the price would reverse, but it never did. I’ve then sat watching them, wishing I was still ‘in the game’ but not pulling the trigger.

Interestingly, two of the five are moving back towards my ‘target price’ so if they keep going will be re-joining my portfolio later in the year. The tricky bit, mentally, has been to recognise that these are not the same businesses as when I originally looked at them. The market is dramatically different due to COVID-19 and the businesses themselves have grown and changed as well. As such, using the same assumptions would be dangerous and I’ve had to think hard about what these companies potentially bring to my portfolio that it doesn’t already have.

In addition to this, I\’ve changed my position a bit on selling \’tranches\’. I previously wasn\’t a big fan, believing that either I liked a company, so wanted to buy more, or didn\’t, and so should sell it all. Looking at my trading diary, I can no see value in selling \’tranches\’ of my position to take some profit and reduce risk in the portfolio, without actually exiting my interest in the company altogether.

It\’s also clear to me to me that \’time in the market\’ is definitely not correlated to returns on an individual position. Some companies shot up in price far faster than others – sometimes this was justified and I still hold the companies but other times it was a great example of \’irrational exuberance\’ and my decision to take a profit and move on was justified.

Those positions that I do regret selling have generally been those with the best \’long-term\’ potential and I could clearly see a case for still holding them today had I not sold them. This tells me that at some points the monkey on my shoulder was a little too excited and pushed me into making decisions that weren\’t really in keeping with my long-term strategy.

This will be something I need to keep a close eye on moving forward – and something that I suspect most investors are also wrestling with!

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