No. of Recommendations: 16
Well here's the thing, you seem pretty good at it so why stop? I know many private investors that are really good traders that have a feel for these kind of things and can do it effectively. I'm just not one of them. I'm the kind that needs a daily reminder not to do something stupid:-). And it's wife that usually serves up that reminder......
Oh, I'm not going to stop : )
I have tried a whole lot of investment strategies over the years. I lost a lot of money on many of them. Most of them. My big epiphany was to stop doing the ones that don't work. (I'm pretty slow). Buying lots and lots of Berkshire stock on dips is one that has worked well for me. In order to have the power to do that, you have to raise some serious money (more than I need for spending) at other times. So selling at least some positions when valuations are rich is part of what I need to do.
On the one hand, my approach is not very Buffett-and-Mungerish, in that I'm not just sitting on my hands and just sharing in the prosperity of the underlying business.
But my underlying reasoning is not so wildly different in another way: price matters. As the price of something rises, the risk rises and the upside shrinks. The margin of safety erodes. Something with low risk and a big upside probably deserves a bigger portfolio allocation, and vice versa. I think that the bulk of their fondness for not trading is very well founded in behavioural observations and the rarity of good investment picks, but I also think that some part of it is tax concerns which don't apply to my portfolio. I imagine that if there were no corporate capital gains tax due on the Coke position in 1999 it would almost certainly have been sold down.
The strange thing is that one thing I haven't done is sell my in-the-money calls and buy plain stock, something I would normally have on my "to do" list when valuations get higher. I have ample cash to do so at the moment. The reason I haven't is that the amount of time value I could realize by doing so (given the usual bad bid/ask spread) is not actually higher than what I'm earning from my broker in interest at the moment (4.83%, more on T-bills) so I wouldn't be better off. The improvement in the effective cost basis of my shares would be offset by the foregone interest. I expect this to change; I don't think short term real rates will stay this positive for long.
Jim
