Trim the returns

Short-term vs long-term profits

As we know, the typical trader will have a very short time horizon and aim to capture profits quickly while often ignoring the long-term trend - and the big profits.

Short-term profits can be gained through swing trading and we look for swing trading opportunities (especially in the right market conditions).

However, much of the time our swing trade opportunities are not so much for short-term gains but more for testing the stock for a potential buy within our long-term growth portfolio.

Trading over a longer period of time offers the opportunity to:

• remove near-term noise, and

• take advantage of the actual trend.

This will still require a little bit of work (unless you are an investor looking to hold positions over decades).

Rebalance the book - trim & axe

A practice we implement annually is to rebalance our book

The purpose is not to be too top-heavy going into the next calendar year.

We also look to axe stocks that are not as favourable for us either in terms of fundamentals or technicals.

It is advisable you look through your long-term holdings once a year to see if a stock is:

• lagging

• technically misbehaving

• producing an excessive number of drawdowns

• volatile compared to the market

• drifting from its target weight

Below shows our current portfolios (Growth + Swing) over a period of 3 years based on our actual weighting including a yearly rebalance.
It also shows the portfolio without rebalancing and also an equal-weight version of the portfolio without rebalancing.

As you can see, over the last 3 years, by rebalancing every year, our portfolio outperforms the non-rebalanced portfolio and also the equal-weight portfolio.

In addition, we do axe trades we no longer feel the need to be in - after at least two quarters of allowing the stock to make good on our investment.

So I urge you all to look through your portfolio and axe stocks you feel are being laggards, take some profit on stocks that have positively deviated from their original target and look for new growth opportunities

Let's go trade!