Mike Lipper’s Monday Morning Musings
The Strategic Art of Strategic Selling
Editors:
Frank Harrison 1997-2018, Hylton Phillips-Page 2018
Playing the Game to Win
Playing baseball, producing a great painting, or writing a great
piece of music, depends on many moves beyond a single swing of a bat, a great
color, or a single melody. It is the same managing an investment portfolio. Amateur
investors often evaluate two to hundreds of individual securities to choose a
single security to sell.
Investors acting as long-playing professionals consider a
myriad of factors in making the decision to sell a portion of their assets. The
sole decision should not be based on the odds of the price of a security rising
or falling a meaningful amount in a significant time period. The purpose of
this blog is to examine the other factors one should consider.
A well-considered security contributes to the rising or falling
of prices for the entire portfolio, in part as a result of its weight in the
portfolio. Some managers may want to equal weight their components, but time
creates changes in weighting. Other managers may choose to heavily weight some
positions or have a portion of their portfolio as a "farm-team". This
allows them to avoid missing the right idea, without making a significant commitment.
One way to reduce daily volatility is to have a large number of positions, at
the expense of near-term performance.
Other ways to examine a portfolio is to evaluate the risks
the portfolio manager chooses to take. These include some of the following:
Foreign Exchange
Political Risk
Critical Personnel
Legal Concerns
Tax Risks
Concentrated
Personality Risks
Engineering and
Manufacturing Risks
Other Risks
One of the bigger risks is owning too many speculative stocks
with inexperienced shareholders. Warren Buffett, in managing Berkshire Hathaway
(*), adjusts the size of some of his larger positions and/or hedges some
holdings with others.
(*) Positions held in managed and personal accounts.
Some Clues in Plain Sight
- Industrial prices, as measured by the ECRI, are slightly lower than a year ago.
- The implications of having large short positions may not be as negative as it appears. Some of these may be short against the box. (Short position offsetting similar long positions. Possible examples are Franklin Resources 7.72% and T. Rowe Price 4.21 % of float. Both are held in personal and client accounts)
- There are approximately 5 times the number shares traded on the NASDAQ vs the NYSE. This suggests that in a low-volume week the remaining trading interest is speculative.
- Studies indicate tariffs are inflationary and will lead to declines in employment, growth, and competitiveness.
- James Mackintosh, a WSJ columnist, suggests the market is very expensive using 3 measures of CAPE adjusting for inflation the S&P 500, and the Fed model. (If one looks at long-term rate of gains performance records. They decline over time, the longer the period the lower the rate of gain and are below the spectacular performance of high-performing stocks. This probably means large gains now are eating into longer-term performance results.
Question: Does anyone see parallels to the period between
the assassination of the Archduke and the beginnings of the actual conflict and
starting WWI?
Did you miss my blog last week? Click here to read.
Mike
Lipper's Blog: Investment Second Derivative: Motivation - Weekly Blog # 849
Mike
Lipper's Blog: Fear of Instability Can Cause Trouble - Weekly Blog # 848
Mike
Lipper's Blog: Detective Work of Analysts - Weekly Blog # 847
Did someone forward you this blog?
To receive Mike Lipper’s Blog each Monday morning, please
subscribe by emailing me directly at AML@Lipperadvising.com
Copyright © 2008 – 2024
A. Michael Lipper, CFA
All rights reserved.
Contact author for limited redistribution permission.
Posts
No comments:
Post a Comment