Source
r/AusFinance•
_RKT

Should I change my investing strategy?

I've been in the share market for about 5 years now and I think I have diversified quite well in my portfolio.

I have a portfolio of about 10 stocks and so far I haven't really sold anything. I'm up about 15% p.a (9% capital gains/6% income according to share sight).

What I've noticed in my portfolio is that often times one stock goes up and another stock of different sector goes down and I feel like I can take advantage of the ups and downs within my portfolio.

So to give you guys an example, currently I have SOL that is up more 50% since my purchase and CBA that is down about 10%. So I think I should sell a portion of SOL (about 1/3) and top up CBA with the money I get from SOL. Both of them I held for more than a year so CGT isn't that big of a deal and the transaction amount would be more than $3k so I'm not really worried about brokerage either.

I'm thinking about doing this when one goes up more than 30%, I'll take a portion of that profit and top up one that's down.

Does this sound like a sound investing strategy? What would be the downside of this strategy?

Thank you!

Posted Oct 15, 2018, 11:08 AM UTC

910
funfwf•

One thing to bear in mind is that you'll have to pay capital gains tax when you sell.

This means that by converting one share into another, you will have less money to invest the second share than you had invested in the first. Thus you'll need to gain a greater return on share 2 than share 1 just to break even.

13
Darwinmate•

That sounds like insanity with no logic.

You should have a strategy for each stock, sell when it drops X% and when it rises X% BEFORE you buy the stock.

10
ribbonsofnight•

actually that's just standard rebalancing. It works very well if you can find stocks that both gain in the long term and are negatively correlated. There's no guarantee that it will work but most people swear by it for whole indices.

For me I'd just use it as a strategy when I invest further money if I'm happy that both are going up in the long term. What goes down doesn't have to come up again.

11
_RKTOP•

Yes, I bought the stocks in my portfolio for a long term (>20 or so years) and I thought this rebalancing of the stocks would "accelerate" my gains.

1
IHaveABigPenis•

I dont really see any harm but I can't see why sol would negatively correlate with the banks. Can you convince yourself why they are negatively correlated? Im not sure if you dca but another alternative may just be to buy more shares of the stock that is cheaper rather than selling and going through cgt. It is till essentially a rebalancing of your portfolio. But the way you mention isnt bad. If the stock is expensive and you believe you can make more money out of a cheaper alternative when including cgt, then sell the expensive stock and buy the cheap. That is better than suffering the opportunity cost. However this all assumes you are a pretty active investor and I would want to do a bit more research on the trends than just one goes up and the other goes down.

2
Darwinmate•

Right, I take back what I said. It might make sense but on such a small scale (10 stocks) would it work?

1
ribbonsofnight•

It might work. If you do the analysis on historical prices it probably worked on some sorts of combinations of stocks and didn't work on others. In the future it might work or it might not. The key is to look at the stock that went down and determine whether the reasons are likely to persist in the long term. Of course if you got that right every time you wouldn't need any fancy rebalancing (but if I owned Myer and BHP I wouldn't switch my money over to Myer because I don't think Myer's woes are cyclical)

3
3rd_in_line•

Selling a "winner" to buy more of a "loser". Horrible strategy, in my opinion. There is plenty of downside.

A winner can keep on going up and up. 2x, 5x, 10x. A loser can just stagnate or worse still, go down. There is nothing wrong with putting more money into a company, even though the price has gone down. But, sometimes shares go down because there has been a change in the comoany and you need to re-evaluate your investment decision. You need to look at the facts, as they are now.

Maybe you should be questioning yourself as to why you don't sell CBA and put into SOL, since it is clearly performing so well.

Sure, CBA might sound like a good buy, but is it really where you want to put more money? Which company has more potential to grow over the next 20 years? If you answered CBA, then maybe you need to have another look..

Other considerations are: What other shares do you own? Do you have other banks? Why not further diversify into other companies, as 10 really may not give enough diversification.

-1†
RAAFStupot•

Selling a "winner" to buy more of a "loser". Horrible strategy, in my opinion.

It could in fact be selling 'overvalued' in order to buy 'undervalued' which is a good strategy.

5
3rd_in_line•

I agree, which I implied further down. Look at the facts with each company. But if using SOL and CBA as specific examples, it is s horrible strategy.

1