Many investors find it easier to buy shares than to sell them. They might see a share they like and quickly add it to their existing portfolio. Consequently, it doesn’t take long before the portfolio turns into a mishmash of investments, even if some of them aren’t performing as well as expected.
However, being disciplined is perhaps one of the most important lessons in investing. After all, investing is about putting our money to work efficiently. That means looking at opportunities where the returns are likely to be better.
It also means looking dispassionately at each of our holdings and deciding whether it merits a place in our portfolio. An often telling question is whether you would still buy a particular share if you did not already own it. If the answer is no, then why are you holding it?
I recall a piece of advice by hedge fund manager Michael Steinhardt in his book No Bull. Steinhardt admitted to occasionally starting his portfolio all over again. So, in one fell swoop, he would liquidate all his positions, and in an instant have a clean sheet and a bag of cash to work with.
Steinhardt said that sometime it felt refreshing to rebuild a portfolio from scratch, free from wish-washy legacy holdings.
Personally, I think it can be instructive when investing to regularly write down on a clean sheet of paper all the shares that we would like to own. What’s more jot down the reasons why you would want to own them – we call it journaling.
So, if you like StarHub (SGX: CC3) for its yield then write that down; if you believe that DBS Group (SGX: D05) may be a good cyclical play then write that down too because it is quite easy to forget a few years down the line why we bought a share in the first place.
And this is where it gets interesting. If you find that none of those names appear in your existing portfolio, then like Steinhardt, you may want to think about starting afresh.
It takes a great deal of courage to liquidate all your shareholdings, and to start anew a la Steinhardt. For some investors it is tantamount to admitting failure. However, sometimes, it is our reluctance to admit to past errors that is holding us back from achieving better investing returns.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.