r/valueinvesting
How do you decide when to trim a position or revisit your investment thesis?
Value investor seeks advice on systematic sell/trim strategies and thesis validation for long-term portfolio management.
Buying has always felt easier to me than selling. I can usually articulate why I’m buying something, but I’ve never had a particularly systematic process for deciding when to reduce a position, rebalance, or admit the thesis has changed.
To force myself into being more disciplined, I started recording a thesis every time I buy:
\- Why I’m buying
\- What has to go right
\- What would invalidate the thesis
\- Target portfolio weight
\- Key risks
I also score holdings periodically across things like moat, management, valuation, financials, market opportunity, competition and product quality, and compare changes over time.
The interesting question for me is what to do when a winner becomes a much larger position than originally intended.
One school of thought says:
\- Trim back to target weight.
\- Rebalance systematically.
\- Don’t let a few positions dominate the portfolio.
The other says:
\- Let winners run.
\- Most returns come from a handful of exceptional investments.
\- Rebalancing can mean selling your best ideas to buy worse ones.
I built myself a simple local tool to track this process because spreadsheets were becoming difficult to manage over multi-year holding periods, but before I spend more time on it I’m curious:
\- How do you personally decide when to sell or trim?
\- Do you use target portfolio weights?
\- Do you formally revisit your thesis?
\- Has anyone found a tool that genuinely helps with this?
I’d be especially interested in hearing from people who’ve held and rebalanced stocks for 5–10+ years and feel that they are optimising for achieving their personal goals. Thanks!
Lot of schools of thought surrounding rebalancing. One camp is rebalance once X% of portfolio weight is breached. The other camp is effectively do nothing. I subscribe more to not rebalancing for the simple reason that 4% of stocks accounted for all of the returns in the market over the last 50 years. If you happened to invest in one of the 4%, it will breach any allocation amount you set for it and you’ll statistically be taking that money and buying into the 96%.
Instead I have a core thesis on why I want to be invested in a given company and as long as that thesis is still live, just do nothing
I personally think rebalancing is a technique for institutional investors, not retail
Seems pretty inefficient time-wise to rebalance a portfolio of merely $100 – $200.
The recurring cost structure should prove that the subreddit challenge was abided by, evidently
Is that because the portfolio is small, or because the expected benefit from rebalancing is small?
Where does your principle change and why? If someone had a concentrated portfolio of 10–15 stocks worth $100k, $500k or $1m, presumably your view would change? But by not being consistent aren’t you holding yourself back from getting there in the first place?
I don’t struggle to decide what to buy, but do struggle with position sizing and when to revisit a thesis. With perfect knowledge there would always a better place for money to be, but imperfect knowledge surely doesn’t mean you shouldn’t try? Unless you just don’t prioritise investing amongst things worth your time which is fair enough.
The trade-off in time and effort is not worth it, sort of like gambling with $1
Of course. But given a portfolio of $100, I don't think the portfolio management strategy is holding back the investor from managing $1mm. Like, how many stocks could a $1k portfolio even contain?
In managing my own portfolio of public equities, my only focus is on being right on a consistent basis. I allocate more capital to the positions in which I hold more conviction (and vice versa). Quite a simple method, but the funds are discretionary, I often invest in sectors that I want to learn more about (i.e. force myself to research), and try to play it by ear, i.e. build intuition
Im pretty much alligned with you. To add another reason, even the best portfolio managers only manage to select market average beating stock picks slightly over 50% of the time. Even if you're being generous and give yourself 51% odds, trimming winners and adding to losers makes you mathematically certain to underperform in any scenario.
Often much easier said than done though
Very much agree. I think if you do it right, maybe a few of your investments will make up the vast majority of your portfolio while the rest of the investments just doesn’t really move the needle
So with your approach, if a position grows from 5% to 25% of your portfolio, but the original thesis is still intact, your approach would be to do nothing and accept the concentration risk?
The reason I started tracking target weights separately from the thesis is that I wasn’t sure whether “this is still a great company” and “this is still an appropriate position size” are actually the same question.
For example, where I had Amazon at 5% of my portfolio and it grew to 25%, I can see an argument that the thesis is stronger than ever, but equally that I’ve implicitly made a new decision about risk concentration without consciously evaluating it.
Do you revisit position sizing independently of the thesis, or do you view them as inseparable?
Yeah my approach is pretty much do nothing as long as the reason I invested in the stock is still valid.
One way to think about it is with a founder’s mentality. Tons of entrepreneurs have 100% of their net worth in one business. Having 25% in one business isn’t the end of the world as long as the fundamental thesis is still valid. Yes the concentration risk is higher and there will be some rough times as well as good times. But as long as the increased volatility doesn’t cause you to do something stupid, just let it ride as long as the thesis is there.
if your investing horizon is long, you could you try both and see which one fits you better.
or come up with a table and start to observe and track them for these ability.
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I think you will find that eventually your portfolio stocks will fall into a "buy and hold forever" vs "can buy but not hold forever" category.
Stocks in the first camp would be those with huge competitive advantage, has been around for the last 50 to 100 years type, for example, Coca-Cola, Moody's, P&H, LVMH, Berkshire Hathaway and even Rollins. You will want to buy them cheap
Stocks in 2nd category, are what i call Narrow Moats, tech stocks that have fallen would be in this category, turnarounds and fast growers.