Guest Article by Steve McClellan: Clean Up and Rethink Your Portfolio During Vacation

Clean Up and Rethink Your Portfolio During Vacation

by Stephen T. McClellan

It’s almost the Fourth of July and vacation time beckons. I think distance or a relaxing change of venue like a beach resort, when you are not inundated by everyday distractions, is a perfect opportunity to ponder your investment holdings. Reassessment and review in a disciplined manner is especially critical in December in order to make year-end investment changes that have tax implications. But on vacation this summer, along with my book Full of Bull (your required reading!), take your monthly brokerage statement and mull it over at the pool with your piña colada.

Rethink your overall strategy or themes and shake off any emotional paralysis that has locked you into certain stock positions. Maybe your theme is stale; are there newly emerging trends to begin investing in? A market analyst I respect, Ray DeVoe Jr., terms this “liberation from the prison of past decisions.”

Some stocks may have attained too heavy a weighting for your peace of mind. However, this is where I disagree with most “experts,” those who advise periodic rebalancing by trimming back oversized positions. Your biggest winners that become the outsized positions in your portfolio are probably the last things you should contemplate selling. I prefer a higher weighting in my best investments rather than just a normal position. If you believe that prospects remain favorable for one of your most sizeable stock positions, buy more, if anything, rather than cutting back.

Other stocks you own may have lagged for so long, it’s time to give up. What is your comfort level or enthusiasm with each individual stock in your portfolio? There are tax considerations when taking gains; maybe there are losers to be used as an offset. A reticence to sell stocks that haven’t worked out — that is, to admit mistakes — is normal. But by not selling your losers and moving on, you commit another mistake. Accept your failures, step up to the plate, and dump your junk so you can start afresh. It only hurts for a bit, and then you feel liberated.

After returning from vacation and if you have been out of touch with the stock market, financial news and the price changes in your holdings, don’t pull the trigger on any portfolio transactions on your first day back. First get up to speed and familiarize yourself with any investment news that you missed. Then if it still seems appropriate, orchestrate the needed portfolio shifts. This may be none or possibly one or two actions.

Always remember, you are an investor for the long term. The fewer transactions the better. Don’t feel compelled to “do something.” The best decision is usually “do nothing.”

©2008 Stephen T. McClellan, CFA

Author
Stephen T. McClellan CFA, author of Full of Bull, is a former Wall Street investment analyst with 32 years of experience covering high-tech stocks. He spent 18 years as First VP at Merrill Lynch and eight years as VP at Salomon Brothers. McClellan has ranked on the Institutional Investor All-American Research Team for 19 straight years and on the Wall Street Journal Poll for seven years. He is in the Journal's Analysts Hall of Fame.

McClellan is former President of the Computer Industry Analyst Group and the Software/Services Analyst Group. He has been a guest on CBS, CNN, CNBC, and Wall $treet Week and has presented to many leading technology companies including IBM, Apple, ADP, and EDS. He is the author of the national best-seller The Coming Computer Industry Shakeout: Winners, Losers, and Survivors, and his work has also been published in The New York Times, Financial Times, Forbes, and other leading publications.

He holds an MBA in Finance from George Washington University and resides in San Francisco with his wife, Elizabeth Barlow, an artist.

Permission to publish courtesy of the publicist.