One of the many things this Board has taught me is asset allocation. X percentage of Y stock. This helps with some buy/sell decisions.
However, I get myself confused about allocation in our dynamic market.
Let me pose a hypothetical:
Let’s say at the beginning of our period we’ve set one of our stocks to 10% allocation. Let’s call this stock FooBar (FOO).
Subsequently FOO announces earnings, its stock price goes on a tear and a few weeks later it’s become 12% of our portfolio.
What do we do with our FOO shares?
Let’s say FOO is one of our high-conviction stocks.
For argument sake let’s not be concerned with LTerm vs. STerm capital gains nor transaction fees.
The following are some possibilities:
- Sell some FOO to get back to 10%
- Do nothing and live with the imbalance. The other stocks my come back and make FOO 10% again.
- Change the allocation of FOO to 12% and adjust the others accordingly.
I note one item in Saul’s Knowledgebase says: “ I definitely don’t sell winners just because they have had a run (not as a policy, anyway). I only sell if I have a specific reason.”
This would lead to items 2 or 3.
What would people here do?