Category Archives: Position Management

A Buy & Hold Approach to Value Investing

buy-sell-hold-diceMy usual approach to dealing with investments is to take a proactive approach to both position management and exit strategy. There are many investors however who prefer to take a much more passive approach to their holdings. Value Investing does not necessarily need to be extremely complex or require constant monitoring / action by those who partake in its methods. In this post we’ll look at a method that more passive investors can take towards value investing using a buy & hold mentality.

For the purposes of our discussion today, we’ll define buy & hold to mean forever, i.e. 15+ years. We will use traditional stock valuation strategies to select excellent companies at a price that represents good value. Instead of actively managing the position however, we’ll adopt a buy & hold approach, attempting to accumulate even more every time the stock is undervalued. This may be a more palatable approach for the passive investor who wants to spend a minimal amount of time and effort managing her portfolio, but wants to retain overall control (as opposed to mutual funds for example). Continue reading

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Position Management using Intrinsic Value

LED exit signThere was an interesting article written a way’s back on the Long Term Value Blog which noted how most value investors spend an inordinate amount of time focused on the entry, and a disproportionately small effort on both the exit and analyzing exit timing. I am going to attempt to dedicate a series of articles towards position management and exit strategy.

Absolutely critical to returning a profit on any investment is proper position management. Entry strategy, position sizing, and exit strategy (both to minimize losses and to capture a profit) are key aspects to a complete system. We’ve already looked at a simple method for entry into a value position, so now let’s look at managing an existing position and eventual exit. Specifically we’ll look at an approach based completely on the stock’s intrinsic value, with action based on how that value changes over time. Continue reading


Averaging Down as a Value Investor

Double down arrowEven the mention of averaging down among some investment circles will lead to a very quick and hostile education on their errors in your ways. Averaging down refers to a position entry strategy whereby the investor attempts to acquire more and more shares as the stock price drops. This results in an overall lower cost basis for the position, and allows more shares to be purchased than would have been possible with other methods, assuming a fixed amount of available capital. Those opposed to averaging down argue that you are only throwing money at a losing investment, rather than focusing on investments that are doing well. Which is correct? Let’s look at both sides of the coin. Continue reading

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Position Sizing at the Portfolio Level: Capital Allocation

Coins on a table

Traditional diversification advice dictates that individuals should own a wide variety of investments in their portfolio including a portion allocated to income vehicles such as bonds, a cash / money market position, and a minimum of 20 stocks. This post isn’t going to focus so much on the macro-level strategy of bonds/cash/stock, but will look at the number of stocks and ways in which capital can be allocated to them as a value investor.

There are two primary reasons to ensure a portfolio has adequate diversification. First, if any one company has a catastrophic event, we don’t want it to have a devastating effect on the investor’s entire portfolio. A 50% drop in a company’s stock makes a much bigger impact if it’s part of an equally balanced portfolio of 5 stocks, compared to another portfolio that holds 20. Secondly, various industries are cyclical in terms of their growth and by choosing to invest in companies from a wide range of different industries, it can serve to smooth our the ups and downs in an investor’s portfolio. Does it make sense to follow traditional diversification advice as a pure value investor? Let’s have a look.

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