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.