More market volatility

The markets have not been kind over the last couple of weeks, particularly to holders of higher rated growth businesses. After such a strong run over the previous year the change is certainly noticeable. My portfolio is about 4% off its high but of more concern is that most of the share prices of my watchlist companies are rolling over too. I’ve decided to take some evasive action.

It’s probably the most difficult decision whether to stick it out over a market correction or to sell up and buy back when it bounces. The advantage of the latter is obvious but it only works if you time it right and most do not. The challenge is that it isn’t really possible to know when prices start falling whether it’s just a minor blip or the beginning of a major correction. It is quite an emotional decision, mostly because you know that if you get it wrong either way you’re going to feel like an idiot. And there’s nothing worse than feeling like an idiot, right?

Personally I think this fear biases me towards inaction. To sticking with my portfolio because they’re all good businesses the long term and I don’t want to be the fool that sold up on a minor dip only to buy back higher. To take the emotion out the of the decision and to avoid possible bias, I think it’s key to stick to your strategy and my strategy in this situation is to sell when momentum changes: in practice when share prices hit my putative stop losses.

The difference to normal is that I have several shares hitting or getting near stop losses at the same time and most of my watchlist rolling over too. I think this indicates that poor performance is more likely to be around the corner than normal, plus it’s the beginning of the summer and valuation are looking fairly high. So, even though I’m fairly sanguine on the market longer term, I’ve decided to be cautious and move my stop losses a bit tighter. On Friday I decided to review my whole portfolio and sold several holdings as a result of poor momentum:

  • NMC Health I sold for a 1% profit
  • Cranswick I sold for a 25% profit
  • IHG I sold for a 4% profit
  • Tristel I sold for a 7% loss
  • Playtech I sold for a 5% loss

This has resulted in my portfolio reaching 25% cash. Some of my remaining holdings look a little shaky too and I won’t hesitate to sell more if they hit stop losses too. I’ll look to buy new holdings from my watchlist only when the overall momentum looks better and/or the individual opportunity looks really good e.g. a bumper trading update. The main risk for my trading strategy is to be whipsawed in a volatile market so I think thing I need to watch out for is not to reinvest too quickly before uptrends are properly resumed.

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