Time to rebalance
I’m spending some time this weekend rebalancing my portfolio. The rebalancing is motivated by the strong performance of some of my holdings and also some new companies that have come to my attention and where I plan to complete my analysis this weekend before buying the shares on Monday.
A quick summary of my portfolio
I think that it is difficult to assess a portfolio without some understanding of the goals and approach. Without the time to provide a full description here are the key bullet points:
- This is a SIPP, so definitely long term money.
- The approach is broadly value investing.
- The intrinsic value of a company is modelled using a 10% discount rate and conservative assumptions regarding sales, profitability, capital requirements, etc. Shares are bought when the discount to intrinsic value is approximately 30% or greater.
- Based on my view that a portfolio should contain around 8-16 shares, initial position sizes are generally 5-9% although I haven’t been too scientific about that yet.
- I make an active decision to hold liquidity depending on my view of the market.
- The portfolio is held 50% in direct equity investments where I am the stock picker and 50% in investment funds.
Rebalancing the direct equity holdings
The target portfolio that I disclose below relates only to the portion of the portfolio where I select the stocks myself. I have therefore multiplied the position sizes by two in order to show how I would invest a portfolio which consists only of direct equity investments where I make the investment decisions.
The rebalancing transactions that I am making are to reduce my position in Melrose Industries (LON:MRO), where I am showing a 44% gain and to add Murgitroyd and Quindell Portfolio. Both of the additions are services companies. Murgitroyd has a long stable track record and while Quindell Portfolio (QPP) has grown at a breakneck pace over the past couple of years it trades at a large discount to the intrinsic value which I have calculated on what I believe to be a conservative basis. The main element of conservatism in my valuation is to restrict the assumed turnover growth in my model to 5% in 2014 onwards compared to the consensus revenue growth forecast of 47% for 2014 as shown in the Stockopedia StockReport. Perhaps I will post a more extensive discussion of Murgitroyd (LON:MUR) and Quindell Portfolio (LON:QPP) as I complete my analysis later.
My target portfolio on Monday morning is:
- Melrose 9.0%
- Northbridge 7.6%
- Petrofac 7.3%
- Chemring 7.2%
- Quindell Portfolio 7.0%
- Braemar 6.9%
- Tullett Prebon 6.6%
- Murgitroyd 6.0%
- Lancashire 5.2%
- Greggs 4.1%
- Liquidity 32.9%
- Total 100.0%