Monday Musings - 9

The market is closed today and so I am using my free time to review my portfolio and look exactly at what needs to happen in my quest for balance. If you have followed me since the beginning of 2017 (or at least read through old posts) then you will remember that when I set out at the beginning I had a hard fast set of rules that I was going to follow. What were these rules at the beginning of 2017? Well here they are:

  1. Positions must be held for at least 1 year.
     
  2. Max Position size of 15%. 
     
  3. Minimum Stock Price of $3 for Purchase. 
     
  4. Invest on a Schedule. 
     
  5. Invest any Extra Cash.

So now that we are in January of 2018 I wanted to review and revise my rules according to what I have learned over the past four quarters. What worked, what didn't work, and what really must be changed as I move on. Let's take a look through them.

  1. Positions must be held for at least 1 year.
    I have absolutely no qualms with this rule and actually think that it is the best rule that I have for anyone that calls themselves a long term investor. Why? Because it means that you have to research, research, research, before you pull the trigger on a company. Also it allows at least 4 quarters for you to watch a company develop and progress. Will you lose some money on this? Sure at some point, but it also makes sure that you don't give up profits by selling positions too soon when a company either has a strategy to turn things around or giving up profits on a market that continues to run. That being said I do have to add a small change to this: 
    Positions must be held for at least 1 year, unless there is a legal issue that may affect the company's value.
    This happens all of the time, such as it did with CenturyLink, Inc. (CTL) and Banc of California, Inc. (BANC). While I hadn't held either of these long, I did exit both positions due to potential legal tie ups.
  2. Max Position size of 15%. 
    No changes here. Still do not think that a position of over 15% is healthy, although I do need to be less conservative and actually get some positions I believe in to a weight closer to that mark.
  3. Minimum Stock Price of $3 for Purchase. 
    To be honest I am not really sure why I put the price at $3 but it sounded good at the time for some reason. I am going to change this going forward:
    Minimum Stock Price of $10 for new positions. If a purchase is made under 10 then the company cannot have a portfolio weight of over 3%.
    Why? This is for two reasons. First after looking at the position of the market I really don't think there is anything that I need to be interested in (that I haven't already purchased) under $10. If I do see something that looks like an interesting value then I need to limit this to 3% of value or under so that I can limit my risk.
  4. Invest on a Schedule. 
    Created this rule so that I needed to invest regularly each month no matter the status of the market. I still firmly believe in this and will continue to invest each paycheck.
  5. Invest any Extra Cash.
    Okay so this is an interesting one that I honestly didn't follow really well, but still hit my yearly goal. Now that I set yearly value goals I think I can do away with this rule. I have learned this year that not all my extra cash needs to go into the fund if my goals are going to be hit. Instead I will be replacing this rule with the following:
    Limit positions to 25.
    Why am I doing this? Currently I sit with a portfolio that holds 21 positions. This amount isn't small by any means but it also isn't large either. I have noticed as I continued to invest this year that I was so focused on diversifying, that I ended the year with some very small positions and also a few positions that I do not know as much about the current company news as I should. This limit should help me also add to my current holdings.

CONCLUSION

As you can see I really don't need to make any huge changes to my rules but instead I am making some minor tweaks that I believe will help me to continue my quest to be both profitable as well as drive passive income over the long run. 

Let me know what you think below!