VIDEO: Our Preferred Strategy for Harvesting Gains in the Portfolio
Chris discusses one of the most important parts of investing — and specifically how the portfolio approaches it.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
In today’s Daily Rundown video, Chris Versace discusses the portfolio’s strategy on harvesting gains in the portfolio, including position sizes that we watch closely.
He explains how we like to let our winners run, but portfolio discipline is a must.
Transcript
CHRIS VERSACE: Hey, folks, Chris Versace, here it is Tuesday, June 18. And we do have a bit of a reprieve tomorrow with the market being closed for the Juneteenth holiday. We are going to review the retail sales report that'll be out later today. And then, of course, later in the week, we'll be digging into some other economic data, including the May housing starts report, tying that back to recently initiated position Builders FirstSource.
But today, I wanted to take a little bit of a break and just talk a little bit about conceptually, one of the more important things that we have to do as investors. Now, a lot of folks think that that means identifying well-positioned companies at favorable entry points that are poised to move higher. And that is certainly the case. But we have to remember, too, that we want to understand how and when we should be taking profits, harvesting gains in some cases, leaving some part of our positions to continue to work for us.
But in other cases, we have to understand when is the right time to actually exit a position. Sometimes, that could be once it's hit, our price target. But as you know, we like to continue to update and revisit our price target, based on new data. So from time to time, and you've seen that quite a bit with a number of our positions, as the data remains favorable, we continue to boost our price targets for our positions.
But it is fair game, once a position gets out-sized relative to the others in the portfolio, to contemplate trimming back the position, ringing the register, as we like to say, and locking in a healthy portion of those gains. So typically, what we like to do is when a position moves past 4% of the portfolio's assets, it is now on our radar for, hmm, if we continue to see pronounced strength in the shares, it could be time to start ringing the register, like I said.
However, if it continues and continues even further, based on the strength, like we saw recently with our shares of Nvidia, with Qualcomm, for example, or even Costco, while we do like to let our winners run past a certain point, we are going to make that move somewhere between 4.5% and definitely closer to the 5% level of the portfolio's assets, like we did, particularly, with Nvidia just a few weeks ago. Now, why are we doing this?
Well, some of this is prudent portfolio management. We want to make sure that no one position is significantly out-sized against the rest of the portfolio. But we also have to recognize that, boy, what about the size of those gains that it takes to go from 3 and 1/2 or almost 4% of the portfolio to 4 and 1/2, almost 5% of the portfolio as well? That means that those positions are likely significantly outperforming the market. And in that case, it might be prudent to take some of the chips off the table.
Now, if we continue to see favorable data points in the form of industry data or other insights that we collect from companies that compete with our customers for or service providers to the particular company we're talking about, as we use the totality of that data, we'll triangulate whether or not we want to keep a meaningful position or if perhaps we take a larger set of chips off that same table. So there's a little bit of an art and a science to this. But this is why we try to share our in-depth thoughts with you, communicating why we're making the moves that we're making when we make them.
Obviously, there's a lot of opportunity for folks to answer-- ask, excuse me, questions, either in our office hours, which are, of course, held in the forum. Or you can simply email us at [email protected]. And of course, we'll get around to answering your questions as we can. But I will say that I really do love the interactive nature of the forum, and I really, really would say, folks, please take advantage of that. It's a differentiated offering that we have, and I think it's one that so far, the folks seem to be really enjoying.
And of course, I like the interaction back and forth as well. And it does give me some ideas from time to time of things that we want to discuss in these videos. So I do appreciate the effort that people are putting into the forum.
That's going to be our video for today. Again, enjoy the holiday tomorrow. We will have content later today and of course, Thursday and Friday. And this is where I say, please remember to check your alerts, check your emails. We want to make sure that you're getting our latest thoughts and more importantly, any moves that we make with the portfolio. As I like to say, we want you right there with us. Thanks for watching.
