This post marks the completion of a whole year of monthly portfolio updates and with continued market volatility and sudden, daily lurches in portfolio value this has been another difficult month. That said I've now come to terms with the strategy that works for me (psychologically if not financially). This is one where I selectively top-up (or add) holdings when their valuation is at the low end of the historical range so long as trading is still improving for them - the theory being that it's deflation of their valuation multiple which has bought the price down rather than a fall in earnings. In the short term their prices may fall further but in the long run it's certain that the price will rise again so long as they continue to grow and increase earnings.
This is a marked improvement on how I felt during the initial October falls where I really suffered from cognitive dissonance. On one side I half wished that I'd somehow predicted the crash or reacted to over-stretched valuations within my portfolio holdings and sold early. Then, when I hadn't done this but instead found myself confronted by a wall of alerts as prices fell 20% or so, I dithered over whether I should sell almost everything. In retrospect I should have got rid of all of my shares at the time but I'm generally reluctant to sell when an underlying business is still trading well and growing. The problem, of course, is that predicted growth can quickly fall away when the economy falls into recession but I still don't know whether this is on the cards or not.
Anyway having spent some time reviewing the valuation levels of everything that I hold, or would like to hold (from my watch-list), I have a much better feel for how cheap/expensive these shares are compared to their long-term history and at what level I feel confident making a purchase (or a sale). From this perspective, with prices 30-40-50% down, we're a lot nearer the bottom than the top when it comes to valuations - unless we're about to have a financial melt-down as in 2008. With the possibility of a no-deal Brexit in 4 months time this is not an outcome that can be lightly dismissed but I'm an optimist and find it hard to believe that our political 'elite' will let that happen. On the upside…
