Sell High, Buy Low to Improve Portfolio Performance

Rebalancing in General

Generally we follow an equal weight approach for the Optarix US Portfolio. This means each positiion has roughly the same value in the portfolio based on market prices.

If a position becomes too large relative to other positions, we may choose to sell some portion of that position. With the cash from such sales and the cash from dividend payments we then increase positioins that relatively to other positions have a lower value. This is called rebalancing.

As a result we tend to sell shares at somewhat higher prices and buy at somewhat lower prices. Note though, that what constitues a high or low price changes over time. The main factor here is where the market and as a consequence the overall portfolio is headed.

Let's look at a couple of specific examples.

Rebalancing with AbbVie

In July 2016 we started a position in AbbVie (ABBV) at a total cost of USD 63.28. In February 2018 the position relative to the overall portfolio became too large for our taste and we sold some of it at a price of USD 117.73, a gain of about +86%, not bad for an investment of about 1.5 years.

In July 2019 the position in ABBV had decreased again compared to our other positions in the portfolio. We decided to increase our position again at a price per share of USD 73.66.

As of writing the price for ABBV is USD 90.17, or +22.4% for 5 months. The shares of the original investment are up from USD 63.28 to USD 90.17 or +42.49%, still quite a satisfactory gain in particular considering that dividends are on top of those numbers.

Rebalancing with Nvidia

The second example is Nvidia (NVDA). Our timing was terrible when we started a small position in May 2018. We paid USD 249.57 per share at that time. We thought that with the increased demand in using graphics adapters for Artificial Intelligence (AI) in data centers but also for assistance systems in cars, Nvidia was well placed in the long run. Also, they have increased their dividend for many years in a row now.

What we didn't anticipate the significant decrease in demand in crypto mining. In the aftermath of a hype in that space, a lot of inventory was built up in the channel and Nvidia had to slow down production. This impacted their results for a few quarters.

So we almost doubled our position again by buying more shares in May 2019 at a price of USD 144.25. At that point our initial shares had a loss on paper of about -42.20%.

As of writing NVDA's share price is at USD 238.81. The shares we bought in May 2019 have unrealized gains of +65.55% while the initial position has unrealized losses of -4.59%. All up, the total position is now up +16.58%.

Summary

By selling relatively high and buying relative low, it is possible to improve individual positions in your portfolio. The emphasis is on the word "relative" for making such sell or buy decisions.

We are not trading on a daily basis. The operative word is patience. You can't force it for a specific position. However, if you have 50 or more positions, then once in a while opportunities open up.

Keeping emotions out of the picture by following a well-defined set of rules helps making better decisions. We have missed out for example on increasing our position in Netflix when they were at USD 231 (now at USD 333). Our rules don't catch all opportunities. However, they spot a good number of good bets.

Disclosure

We own shares in all companies mentioned in this article. We have no plans to change any of hose positions in the next three trading days. Past results are no guarantee for future returns. Do your own due diligence and consult your financial advisor before making investment decisions.

Results Nov 2019: +1.88% Active Return vs S&P 500

US Portfolio Performance

Another good month for our Optarix US portfolio. Our objective is a result that is roughly in line with the S&P 500, doing +1.88% better than the index over the last 12 month and 1.39% better each each over the trailing 2 years is quite satisfactory.

Looking at the performance of our own Optarix US Portfolio as of 30 Nov 2019, the results are quite satisfactory, too: +15.68% for 12 months and 10.31% annually for the last 2 years. All of these is after taxes and fees.

	1 year	2 years
S&P 500	+13.80%	+8.92%
Optarix US Portfolio	+15.68%	+10.31%
Optarix Active Return	+1.88%	+1.39%

Values in this table are annualized for periods of over one year.

Here are updated graphs for both the active return over 1 year periods as well as the information ratio of the Optarix US Portfolio against the S&P 500, both for the time from November 2018 to November 2019.

Please note that past performance is no guarantee for future performance.

Other Developments

Since the last block post we have also completed our goal to add posiitions for all dividend aristocrats in the S&P 500 to our portfolio. The dividend aristocrats, i.e. companies that have increased their dividend each year for at least 25 consecutive years, represent our base investment.

In addition we have a small selection of investments in the hightech sector. Examples are companies such as Microsoft (MSFT) or Atlassian (TEAM). We select these companies based on our opinion about their business model, their growth perspectives, their profitablity and - where present - a history of increasing their dividends from when they started to pay dividends.

Over the last few months the trade wars and the looming Brexit were topics that we think influenced the markets. Surprisingly despite the trade tensions, the economies in the US has been astonishingly robust. The Federal Reserve has cut the rates this year and believes that for now they are in an observing position. If needed, however, they will act when and as appropriate.

The ECB is keeping interest rates low as well. They have also restarting their bond buying program, pumping even more liquidity into the markets. Interest rates for German Bunds remain negative and it doesn't appear as if they move into positive territory any time soon.

At the time of writing the newly elected parliament in the UK has approved Boris Johnson's Brexit deal. The plan is that the UK will leave the EU at 31 January 2020. For the relationships after the Brexit the UK wants to negotiate an agreement with the EU by December 2020. We believe this timeframe is very ambitious looking at past examples of trade agreements. In all cases the upside is that finally there is clarity: The UK will leave the EU, with or without an agreement.

In the US two articles of impeachment against President Donald Trump have been approved by the House of Representatives. However, they have not been passed on to the Senate. We believe that unless something material changes, the impeachment will struck down in the Senate by the republican majority. We also believe that for the time being the impeachment will have little impact on the financial markets.

It terms of US politics we think it will be more interesting to follow reliable polls after the democratic challenger has been determined and as both large parties prepare for the elections at the end of 2020. We think the result of those polls is likely to have a bigger impact on the markets in particular if they are tight, i.e. within the margin of error, or inconclusive.

Portfolio Changes

In November we increased our positions in Colgate-Palmolive (CL), Ecolab (ECL), Mc Donald's (MCD) and McCormick (MKC).

Suggestions For Your Portfolio

Generally we suggest an equal weight portfolio. That means that all your positions have roughly they same market value. Obviously this changes over time as some positions go up in value and some may go down. If that happens rebalance by buying/selling to get each position back to their average.

Increase

With this idea in mind, here are some suggestions for companies for your consideration to add to your portfolio. These are all dividend aristocrats. As of writing the look more attractively priced than the average.

1. People's United Financial Inc (PBCT)
2. Franklin Resources (BEN)
3. AT&T Inc (T)
4. Chevron Corporation (CVX)
5. Wallgreens Boots Alliance (WBA)

Decrease

Equally, if you have a position of one of the following and that position is above average in your portfolio, we suggest considering reducing them. Relative to all S&P 500 dividend aristocrats they are a bit more ambitously priced at the moment.

1. The Sherwin-Williams Company (SHW)
2. Becton Dickinson and Company (BDX)
3. Brown-Forman Class B (BF.B)
4. Abbott Laboratories (ABT)
5. Ecolab Inc. (ECL)

As always, while we can make suggestions to consider, we cannot accept any responsibility for your investment decisions. We strongly recommend that you do your own due diligence, buy only what you understand, buy only what fits your individual objectives and circumstances, and in particular that you seek professional advice from your investment advisor.

Disclosure

We hold positions in all of the companies mentioned in this post. We also intend to add to our position in WBA in the next 3 trading days. We have no intentions to change any of our other positions.