When do you trim your winners, if at all? Is there a concentration level that you’re uncomfortable with? Does confidence level increase your ability to use Charlie Munger’s “sit on your ass” investing approach when watching your winners continue to win?
One of the conundrums we all seem to have is how/when to let our winners run and to what level of risk we are comfortable with when positions start to reach large percentages of our overall portfolio. For some, a 5% position is terrifying. For others, 40% is big…but not too big to scare them into selling. Fascinating stuff.
I was doing a rearview mirror review this morning on past sales of one of my top holdings(AYX)and only then did I realize that if I hadn’t trimmed a few times this year, AYX would be over 36% of my portfolio. That’s when I stopped to really ask myself, what is my threshold for portfolio concentration? If the walls came tumbling down, how much would I want invested in a single company? SPOILER ALERT - I didn’t come up with an answer.
Billions of dollars have been made or lost depending on your side of the trade tickets when people have let winners run or cut them for fear of concentration risk. Netflix comes to mind. I remember keenly after the Quickster debacle how proud I was of myself for buying near the bottom and then “winning” with some nominal double digit gain a short time later. Ha! We all have those stories. Now, those NFLX shares wouldn’t have been life altering money, but it would be worth six-figures today.
We all have those stories and they are just as valuable for future investing as they are entertaining to remember.
Of the many valuable pieces of this board, the way in which so many of you share your portfolio concentrations is a personal favorite of mine. It’s not so much about WHAT you own that interests me, but more how you’ve come up with your own allocations (systematic, rules-based, gut-feel, etc). And how varied you all are in your comfort level and confidence levels.
Rising tides lift all boats…and you’ve certainly all helped me more than you know.
And since I’ve never really shared my portfolio, as of 10am this morning I am invested in the following material positions: