In the first week of January I’m going to rebalance, per the strategy I pursue with this portfolio, my long-term 50 Stocks Portfolio. That means I’ll be taking profits in the big winners of 2017 and adding to positions in the laggards for the year ahead.
This rebalancing works pretty well for a long-term portfolio that looks for companies with a competitive advantage that will endure for five years or more. This rebalancing gives the portfolio a chance to make a profit on the cycles that even a great stock and company go through. Thanks to the rebalancing I buy more of what’s out of favor now and can look forward to a profit when the stock moves back into favor.
This works–as long as the stock is just temporarily out of favor. I certainly don’t want to send good money chasing after bad if something fundamental has changed for the worse about the company’s competitive position. (Or if I’ve made a mistake–perish the thought–in my initial analysis of the company and the stock.)
So ahead of that January rebalancing I’m going to clear out a few stocks that I don’t especially want to own in 2018–or for the long haul either.
My list of eight candidates for selling out of this portfolio include:
Allegan (AGN) down 33.44% since my initial purchase on February 13, 2017
Chesapeake Energy (CHK) down 80.75% since my initial purchase on June 7, 2013
Yamana Gold (AUY) down 80.26% since my initial purchase on January 13, 2012
Fluor (FLR) down 28.59% since my initial purchase on January 18, 2011
Potash of Saskatchewan (POT) down 15.71% since my initial purchase on December 30, 2008
BHP Billiton (BHP) up 10.03% since my initial purchase on December 30, 2008
Sunpower (SPWR) down 66.08% since my initial purchase on January 5, 2010
General Electric (GE) down 27.61% since my initial purchase on July 22, 2009.
Let’s start with what I’m going to keep since I think these stocks have a strong possibility of riding an up cycle in the year ahead off of the current down cycle.
I’m keeping these four stocks:
Chesapeake Energy because I think the down cycle in natural gas will end someday and demand will make a dent in supply
Fluor because I think we’re on the verge (2018? maybe) of an upward swing in investments in energy infrastructure
Potash of Saskatchewan because I think we’re close to the bottom of the fertilizer cycle and farmers can only postpone buying fertilizer for just so long
General Electric because the company remains an industrial equipment behemoth and the new CEO isn’t likely to make as many bad decisions as the last team
Which leaves me with four stocks that I’m going to sell ahead of the January rebalancing of this portfolio:
Allegan because adding it to this portfolio was a mistake based on a belief that the company’s management shared my sense of where the company’s competitive advantage (Botox and related pharmaceuticals) lay.
Yamana Gold because the company’s ability to grow gold production at a low cost isn’t the best among choices in this sector. If I’m going to be patient with a gold stock, I want to own the best in the sector on these metrics
BHP Billiton because I don’t see this mining company as best in class in any of the commodities it produces
Sunpower because Chinese solar producers have made it just about impossible for a solar company anywhere in the world to make money–even as installed solar capacity continues to soar. I think you can make money as a specialized or niche player in solar but Sunpower doesn’t fit that bill.
When I do my rebalancing in January I’ll also be adding a few stocks as I try to work this portfolio back toward 50 names.
Full disclosure: I don’t own shares or options on any stock mentioned in this post in my personal portfolios.