Opportunity cost

[Placebo]

In everyone's portfolio there is usually a `sleeper' or a share (or two or three!) that goes up only slightly, or sideways, or down [B)]... these can be culled but the question is often `when'?

I've seen Phaedrus' Porpoise theory where you cull out the worst performer every so often -- this would work to a degree.

The question I have is when you have your money parked somewhere, where it is not necessarily growing strongly but is not `under-performing', do you still consider it a potential sell and are you constantly looking for better performers.

In other words, is there an opportunity cost to holding a stock that may be being out-performed by others outside your portfolio at present (and you may consider that performance temporary and long-term your position is better).

[whiteheron]

Placebo

I think that it depends on how you perceive the future potential of each stock
If I have a stock tha seems to be stuck and unlikely to move up in the near future and there are other stocks that I see as having strong short to medium term prospects then I will sell the stock that is sticking and make a move to what I consider to be a better bet --- as to keep the stock that is sticking and and unlikely to move is costing me the opportunity of (hopefully) purchasing a better stock

Nothing in the sharemarket is an exact science of course --- it is a matter of trying to have your money where you see it having the best chance of performing the best

I liken it to a horse race without a finishing post, where you have the chance of changing horses at any time for the cost of brokerage (buy and sell)
As a matter of interest I am not the slighest interested in horse racing !

[Ricardo]

Placebo
Thinking about this one just reinforced for me how true it is that most of what makes a good trader is the mind stuff.

When the market is going sideways, being in that market has an opportunity cost of the banks interest rate on deposits, and its generally been no big deal for me. If I think that what I hold isn't going to go down, I don't worry about the opportunity cost of holding it.

If the shares I hold take a dive, I bail out if I hit my stops, and try not to dwell on it, since I can't get it right all the time.

The big change in how I view things comes when I had been contemplated buying a stock, but didn't because my funds were in another one. When the one I'd considered takes off, the opportunity cost of being in the lesser performer is made very clear. This really cheeses me off and upsets me more than taking a loss. The only comfort is I can consider myself "normal" as most traders apparently react the same way.

In theory, opportunity cost is always there, as the cost of the next best alternative. For me though, it only hits home for the times where my pick was right, but I didn't act.

[Mick100]

If you have not got any stocks in your portfolio that are going sideways or down a bit then you are not diversified. You should always have a few stocks in your portfolio that your not too happy about holding.

My oilers have benn going sideways/down for 12 - 18 months now. I'v added to some of those positions recently.

If you want all your holdings in positive territory all the time you will be forever "chasing your tail"
,

[Ricardo]

True enough Mick. If all your stocks are going up you may well not be diversified, as was my situation a few days ago when I was almost exclusively in Uranium and Nickel. The lack of diversification hit when they all downturned together.
However I can't agree I'd ever want a few stocks I wasn't happy about holding. Some I wish the market would hurry up and see the value that I see, but if I ever get unhappy with them, for me that means sell.
Now that we have CFD's in NZ I am looking at diversifying by holding a portion of my portfolio as short positions.

[Mick100]

quote:Originally posted by Ricardo
[
However I can't agree I'd ever want a few stocks I wasn't happy about holding. .

Yes - poor choice of words there
Should have been - you should always have a few stocks in your portfolio that are putting in a below average performance - I'm not unhappy to hold such stocks if I think the long term outlook looks good.
.

[Crypto Crude]

quote:whiteheron-I think that it depends on how you perceive the future potential of each stock
If I have a stock tha seems to be stuck and unlikely to move up in the near future and there are other stocks that I see as having strong short to medium term prospects then I will sell the stock that is sticking and make a move to what I consider to be a better bet --- as to keep the stock that is sticking and and unlikely to move is costing me the opportunity of (hopefully) purchasing a better stock

Nothing in the sharemarket is an exact science of course --- it is a matter of trying to have your money where you see it having the best chance of performing the best

Hey whiteheron....
My strategy is a little different to yours and everyone elses here....
You see, I donot have my main fund in the areas that offer me the best potential return...
My number 1 holding will offer me comparatively less returns than what I think I could get over the next month, but it has a higher degree of certanity over time...
So im trading off bigger returns elsewhere for more certainty...

I believe in the theory that if you see another stock out there, then you cut your worst performers first... and not to profit take off your best picks which is what most usually do...in doing this you create a portfolio of great stocks rather than being left with all your crap non performing picks... Its much harder to cut your losing stocks than to take profits off your winners...

I also believe that if you have a pick that you feel so confidently about, and your sure your onto a winner, then you park the lot on it... Warren Buffet believes in this and I do to....
Ive only ever parked the lot on it once...
NZO is currently a parking the lot on it stock, believe it or not... but im not going to....
[8D]
.^sc

[whiteheron]

Shrewd Crude

I dont think that our strategys are actually too different
Shares such as MCR OXR QGC and recently TZN I will hold for the long term regardless of short term price fluctuations as I consider them to be excellent long term holds
The shares I sell from time to time are those that looked promising when purchased but which have not and do not look like firing for some time, replacing them with what I consider to be shares with more promise

This strategy means that I end up holding winners whilst periodically weeding out losers (or those seen as holding little promise compared to others)

I do not sell those that are proven winners --- that only leads to holding the not so good and the rubbish

One should always be looking to improve ones portfolio

[Mick100]

quote:Originally posted by Shrewd Crude

My number 1 holding will offer me comparatively less returns than what I think I could get over the next month, but it has a higher degree of certanity over time...
So im trading off bigger returns elsewhere for more certainty...

Excellent approach shrewd
Minimising risk (ie preserving capital) should be every investors number one priority - maximising returns comes second.
,

[Mick100]

quote:Originally posted by Shrewd Crude


I also believe that if you have a pick that you feel so confidently about, and your sure your onto a winner, then you park the lot on it... Warren Buffet believes in this and I do to....

Warren's never invested in speculative oilers and miners as far as I know. The companies that warren "bets the farm on" have been around for a long time, and are usually involved in the production/distribution of consumer staples with trusted brand names. These companies can also raise their prices during inflationary periods. They arn't price takers like the oilers/miners.
I think if warren were investing in speccy companies, as you and I do, he would have a far more diversified portfolio.
.