1/ Investing is hard because it takes the perfect balance of conviction and humility.
For instance, a stock you know well has gone up a bunch.
Do you trim because the forward return is lower than alternatives or do you hold?
For instance, a stock you know well has gone up a bunch.
Do you trim because the forward return is lower than alternatives or do you hold?
2/ On one hand, the decision seems easy. Lower forward return -> trim.
On the other hand, there are lots of considerations:
• Are you adjusting for taxes?
• Are your forward return assumptions are too low?
• What about when adjusting for your level of company knowledge?
On the other hand, there are lots of considerations:
• Are you adjusting for taxes?
• Are your forward return assumptions are too low?
• What about when adjusting for your level of company knowledge?
3/ If you're rotating into a company you know fairly well instead of really well, what's the risk that your conviction gets shaken?
How much of a premium should you place on this? Should there be any premium at all?
How much of a premium should you place on this? Should there be any premium at all?
4/ And then maybe you're underestimating the optionality of the current holding? Or overestimating the alternative holding?
5/ Each person will have their own ranking system for each of these factors.
But finding that perfect balance of conviction and humility is difficult.
But that's just another reason why investing is fun 😉
But finding that perfect balance of conviction and humility is difficult.
But that's just another reason why investing is fun 😉
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