Wednesday, April 30, 2014

Current Holdings and Valuation

I decided to run a quick "health" check of the portfolio.  Here are the results:

The top nine stocks are shown as green, indicating they are currently undervalued.  Today's blended PE ratio (from FAST Graphs) is below the average PE ratio for the past 6 years.  I like to use six years of history vs. anything longer to get a more up to date sense of the what multiple the market give these stocks, independent of the greatness in the distant past.  If any of these are currently underweight in the portfolio, I'll add to them.  If they are overweight, I'll let them be.

The middle 13 stocks are trading at fair value, or a slight overvaluation.  I'll continue to monitor these, especially WMT, WFC, and CVX.  No action yet on any of these in either direction, though I'm ready to trim the ones nearing 20% overvaluation.

The last eight are getting into "dangerous" waters.  They are trading at premium to what the market has been willing to pay for these stocks over the past six years.  I will look at % each makes up of the portfolio, and definitely trim them back to a 2/3 position.  I don't like to sell completely, unless they really get overvalued, say around 50%. I'll keep a close eye on ADM and WAG, and sell these completely if they continue to swell.  (Note:  I've trimmed all of the "red zone" stocks previously except SO).

I always struggle with the decision to sell stocks, especially after a nice long run up in price over years.  I become emotionally attached to these names, like WAG for instance.  Warren Buffet tends to hold his stocks, even through periods of overvaluation.  Take a look a Coke over the past 21 years, Warren has held and added to his KO position throughout this period:


The PE ratio for Coke got up to over 47 in 1998, and then corrected downward for the next 10 years before returning to a more "normal" PE of 15-20.  Wouldn't Warren have been wise to unload his position when the PE got that high?  Seems like a yes to me.  If the historical PE is 28, than at 47, the PE was a whopping 68% above normal.  

Looking at my stocks, WAG at 49% above "normal" looks a little dangerous.  So, do I emulate Buffet and hold, or sell and look for a better value?  Any thoughts?


That's all for now,

Chump

9 comments:

  1. i plan to hold all my stocks and never sell unless dividend cuts or freeze. Therefore, I would recommend to hold for the dividend income.

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    1. Hey FF, hard to argue with the Buffet method.....I looked at my original rules, which are in need of an update, but I think only a trim for companies I really like. I'll use the trimmings to add more dividends from companies with better valuations....

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  2. Sounds like you already know your answer. You are your own man Chump! So SELL!

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  3. Replies
    1. I'll do a little trimming into up markets bexpo....

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  4. Sold half my WAG today on the run up to $70.

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  5. Morningstar has a "consider selling" price on WAG of $75. I've already trimmed it back from a 5/3 position due to growth, to full 3/3 position. I recently added TUP and TM with some of those proceeds. If WAG gets up to $75, I'll knock it back to a 2/3 position.

    But I have to say, I love the company, and I think they have a very bright future selling drugs to our aging population, so I'll keep a position for the long haul.

    Chump

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  6. Chump--did you sell your Knowles spinoff from DOV? I'm feeling a little gypped, getting a non-dividend payer spinoff from a dividend payer.

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    1. Hey Kolpin, how are you? Yes, I sold Knowles within a few days of the spin off. I thought of the sale as just a bid one time dividend from DOV, which I am still holding. I reinvested the money into other companies with a longer track record, and dividends.....

      Chump

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