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Thursday, February 26, 2015

Recent Action - Building Up Some Cash Position

In the recent years since I started investing, I have managed to gain quite a fair bit on the return of my equity portfolio from the assistance of a running bull market. 

Even though this was partially achieved through hundreds of hours of thorough monitoring and research into companies which I think are worth investing, the last thing I wanted to see is to think my strategies are formidable and can outlast any market correction or recession. Not true. 




A complete investor is one who is not only able to research on undervalued companies through analysing the different gargantuan metrics in the financial statements but who is also able to handle proper asset allocation as and when is required. In such cases, shifting towards the different percentage asset allocation at different times will serve to adapt the changing needs of the environment. 

Patience will become a very important attributes of a successful investor because for most of the times it makes one look like a fool being in cash position yielding return that loses out to inflation over time. On the other hand, an investor can look to building a cash position as an option that they can use to take advantage of the market during a market correction. Cash by itself is a position and it can become a trumpet card used to an investor advantage when the right moment comes along. 

One of my goals for this year is to build up sufficient cash position given that market valuations are stretched and finding an undervalued company to invest becomes increasingly difficult. I will talk more about the general market valuation conditions in my next post which can give us an overall indication of where the market is at right now. Even though I do not generally like to focus too much on the general macro-economic situations around the world, it is difficult to ignore the correlation because finding undervalued companies to invest are becoming increasingly difficult these days which signifies some sort of market conditions that are overvalued to a certain sense. 

Following my previous portfolio updates for the month of February, I have now divested all my holdings in MGCCT and Neratel at a market price of $1.03 and $0.76 respectively, representing an overall gains (including dividends received) of 42% and 130%. 

Divested MGCCT @ $1.03


Divested Nera @ $0.76

This is a very difficult decision to make because these are companies that has been with me for many years and has the potential to do well in the future. Having said that, I re-evaluate the current position that they are in together with the prevailing valuations and thought that they are somewhat overvalued, if not fairly valued at the least. I also asked myself at this time whether I would be willing to invest in the companies at the current price had I not been vested and the answer is a clear conviction no. Thus, my decision to divest was based on such convictions. 

As the markets are getting more expensive over time, I will be evaluating the companies in my portfolio even more on a regular basis. Even though the objective is to focus on fundamentals for the long term, it would be pretty foolish not to consider selling at some point should the market over react by providing opportunities for investors to take profits. It is not a question of whether we will see a market correction at some point in time, but a matter of when. Why not consider selling at the same conviction of when you are buying?

What about you? How are you playing the current market conditions?


14 comments:

  1. Oh my, that is some sick return from Neratel, nice! Congrats on those gains you locked in!

    ReplyDelete
    Replies
    1. Hi GMGH

      Thanks, have been with me since the longest era since I started investing.

      Delete
  2. Hi B,

    Congrats on the juicy gains in MGCCT and Neratel.

    Cheers,
    Farmer.

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    Replies
    1. Hi PIF

      Thank you for your well wishes :)

      Delete
  3. Hi B,

    Every time u talk about increasing cash, I feel hell like joining u!

    ReplyDelete
    Replies
    1. Hi SI

      Hahaha, I know who started this right!!!

      Lol, I think it's good to keep track and depending on one's investment. There are certainly a couple I would like to keep.

      Delete
  4. Hi B

    Reading this post made me think that many of us have not gone through a serious bear market with substantial positions. The next major bear will be a test for us and it is important for us to sharpen our methodologies and be ready should the market environment change.

    ReplyDelete
    Replies
    1. Hi RetailTrader

      Exactly.

      I remember last year in Oct 2014 where we have a slight 10% correction and everyone is shouting bear as if the world is coming to an end. Imagine if the scenario is worse than that, things could get really ugly if one is unprepared.

      Delete
  5. I'm having the same struggle too! But then I have to pay taxes. So I don't know. The business themselves are fine, it's just the current price might not justify the future growth.

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    Replies
    1. Hi Henry

      I'm going to just clean out the companies which are vulnerable to future growth or any market turnaround. The rest of those with strong FCF capability and balance sheet will be there to keep.

      Delete
  6. I think that a lot of stocks have become expensive. Like RetailTrader think that the bear will be a shocker as it always comes in a different manner, I've been pruning my portfolio and making shorter trades.

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    Replies
    1. Hi Joyce

      If we are looking hard and see plenty of overvalued counters on the seashore, we pretty much know where the market is at right now ;)

      Delete
  7. Hi B! I think the market is on a bull run for the next year or so at the very least but at the current moment I am looking to let go of some of my stocks that don't fit well in my portfolio and stack up on cash position as well. I have this really bad habit of spending them though. :)

    ReplyDelete
  8. Hi B,

    Congratulation on the gains from MGCCT and Nera. This post makes me sit up and question myself should I relook on my holding of MGCCT too?

    ReplyDelete

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