Portfolio Turnover

My portfolio, like the stock market, is at all-time highs ($830k/3100). Up nearly 30% this year. It is hard not to feel like a genius. But I need to remind myself, “even this shall pass away!”

In some time the markets will swoon, and with it my portfolio. Then, perhaps, I will feel like an idiot. The truth is, we are neither geniuses nor idiots. The stock market, unlike a casino, has positive expected returns, so as long as we can survive and stay in the game, we have odds in our favor.

With the market at highs, bargains are hard to find. There is not much to do, other than to reflect on one’s process.

One of my problems is turnover.

I tend to hold on to positions that are not working for too long. I have owned JEF (formerly LUK) for nearly a decade. At the time of purchase, it was my second largest position. Including dividends, returns have essentially been flat (~3% CAGR).

Not my worst investment, since I have had my share of real losers (50%+ losses). However, it has been a embarrassing failure of process. I should have sold JEF a long time ago. I held on, because the SOTP analysis always suggested JEF was ~20-30%+ undervalued.

Thankfully, today, JEF is a much smaller position, less than 3%. It does not feature in the top 10 holdings. Shamefully, this is not because I sold any JEF; mostly because, I added other stuff.

So what is the point of all this rambling? I have to be less fearful of killing ideas I have grown accustomed to. Ideas that are not working. Every idea deserves, maybe, 3 years. 5 years, even. But 10 years? Clearly, there is a limit to how long one waits to see if Mr. Market agrees.

For a small investor like me,  portfolio turnover is not a bad thing. If a new idea looks better than an old idea, slay the old idea – however beloved. I don’t know if this is a human tendency, but it is definitely a personal tendency to grow increasingly more attached to existing positions.

I have held JEF for a decade – growing accustomed to the usual excuses for why it trades below intrinsic value. In the future, I should be more willing to opt-out. To clean the closet. No need to wait indefinitely for a bad investment to turn good.

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