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ASX Trade Period: When to Trade Out Your Holdings

October 13, 2017

One might argue that AFL Trade Period is just as, if not more exciting, than the AFL season itself - depending of which team you follow.

Decisions made during trade week go a long way in deciding a club’s future success. Consider Richmond this time last year. The Tigers traded in Prestia from the Suns, Caddy from the Cats and Nankervis from Sydney. All significant contributors on grand final day.

Long term investors should conduct their own trade period at least once a year by deciding which companies should remain on their watchlist. I recommend in Premiership Portfolio that investors take pride in maintaining their watchlist, just like a list manager does with their AFL playing list, doing so can be just as important as maintaining the portfolio itself. When a stock needs to be dropped or traded, you need to have intimate knowledge of the talent that can replace it. A good quality watchlist of no more than 40 will help you do that.

Now that trade period is upon us, below are a few reasons why investors might decide to trade their holdings:

 

 

You’re Overweight! No, not from a skinfold perspective. From the perspective that you might have too many of the same players in your team, oops, too many of the same stocks in your portfolio. Stocks, like players, perform a role for your portfolio. An AFL team might trade out a small forward if they have an abundance of them, and hope they receive something in return that their team lacks. An investor might sell a bank or a retailer if they are overweight in that particular area of the market and look to bolster their exposure to industries they don't own a lot of.

The offer you receive it too good to refuse. Legendary investor Benjamin Graham used to say, “Price is what you pay, value is what you get”. If the market is offering you a price for your shares that you believe is well above what they're worth, then you need to take advantage of it. Just about any AFL team would accept a first round pick for one of their players that wasn’t even in their best 22 – yes, it’s has happened before.

Time for a fresh start. In a move that shocked most, the Melbourne Football Club put up Jack Watts for trade. The club has not been able to get the best out of Jack and expectations of both parties aren't aligned. A stock in your portfolio might be stagnant and gone nowhere for a handful of years. If nothing in their commentary suggests any new initiatives will make a difference to the underlying business, it's then worth considering moving them on and seeing what you can get for them. One option is replacing the stock with a younger version of it. A version that has more growth, more potential.

 

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