"northern hemisphere winter…GoM value unlocksenegalNWS lng expansionreckon there’s another $10 upside here you might be leaving on the tableayou have habit of selling too early"@barewitness,
I believe that proper portfolio construction is a crucial part of risk management.
To that end, I make use of a matrix that helps me manage portfolio positions in a way that removes as much of the human emotion out of the process, as possible.
While it is not a framework to which I adhere rigidly, in essence the portfolio construction matrix I use provides me with a
rough guide to balance the
potential investment return on offer compared to my assessed valuation, with the
degree of conviction one might have in that investment return being delivered:
View attachment 4644049So, for example, when I first acquired WDS (it was still WPL at that stage), I assessed it to have between 80% and 100% upside and, given it is a capital intensive commodity business with hard-to-predict earnings, the degree of conviction in the investment could only ever be considered to be "medium".
With those parameters, the matrix pointed to between a 3% and 4% portfolio position at the time.
Fast forward to today and - even using your extra $10/share of further upside, which implies
28% remaining upside from the current level - on that t basis, the matrix points to between a
1% and 2% position.
For context, when I checked last night, I had
almost 6.0% of my family's capital invested in WDS.
Which, given the residual potential upside (even assuming your blue-sky assessment) and the level of investment conviction, is - purely from a risk management perspective - too large a position for me.
So, for me it isn't so much a matter of "selling too soon" as it is one of selling for purposes of managing risk.
[Note: As I mentioned, that matrix is merely a rough guide and is not intended to be prescriptive; where it is intended to come into its own is in addressing portfolio holdings that are very obviously out of kilter with the investment opportunity on offer.
Also, while it works for me, given my personal circumstances and investing philosophy, I don't expect others to find it useful.]
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(20min delay)