In investing, when you are on a roll and end up owning multibaggers in the portfolio, you start facing problems of skewed portfolio weightages. While its a happy problem to have, it still remains a problem.
Usually in a concentrated portfolio, until.a stock’s weight crosses 30-35% , its not a big issue. But once it assumes weightage of more than 35-40%, things start getting tricky.
The main thing to look out for is whether the stock is running hard on numbers, or narratives. Or a combination of the two. If its only narrative, then position needs to be cut. If earnings continue and further triggers are lined, up a longer rope can be given.
Psychologically, its difficult to digest the portfolio value swings that are dictated by a single stock being hevay in portfolio. But riding one or two big multibaggers is all thats needed to overcome this bias.
At some point of time, a decision would have to be made and trigger have will have to be pulled… The key consideration will be how much upside is pending at that point of time. If the best case earnings for next 2-3 years are baked into prices, it makes sense to atleast trim if not exit fully.
For consequences of not taking action, recent example is of Laurus labs. There were folks including me who had heavy allocation to the stock. If we had not sold when we did, and kept holding on, portfolio growth would have taken a hit. I had put up technical and fundamental reasons for exits at that point of time.
At times, after you sell, stock will continue to go up and make you look dumb. But that has to be taken in your stride. Most investors, including the smartest of the lot go through this phenomenon off and on.
Hope this helps.
Subscribe To Our Free Newsletter |