Rebalancing my portfolio

Saturday, Sep 07 2013 by

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…

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Melrose Industries PLC is a United Kingdom-based company that is engaged in buying manufacturing businesses. The Company’s businesses include Nortek and Brush Turbogenerators. It operates through four segments: Energy, which includes the Brush business that is engaged in supplying energy industrial products; Air Management, which includes the Air Quality & Home Solutions business that manufactures ventilation products and the Heating, Ventilation & Air Conditioning business that manufactures and sells split-system and packaged air conditioners, heat pumps, furnaces, air handlers and parts; Security and Smart Technology, which includes the Security & Control business along with the Core Brands and GTO Access Systems businesses; Ergonomics, which includes the Ergotron business that manufactures and distributes products designed with ergonomic features including wall mounts, carts, arms, desk mounts, and stands that attach to or support display devices. more »

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Northbridge Industrial Services plc is a United Kingdom-based company engaged in hiring and selling of specialist industrial equipment to a non-cyclical customer base. The Company operates through the Crestchic loadbanks and transformers, and the Tasman oil tools and loadcells segments. Its Crestchic loadbanks and transformers segment is engaged in the manufacturing, hiring and sales of loadbanks and transformers and includes the Crestchic Loadbanks Crestchic (Asia-Pacific) Pty Limited and China businesses, among others. Its Tasman oil tools and loadcells segment is engaged in the hiring and sales of oil tools and loadcells. It offers a range of equipment, including drill strings and collars, blowout preventers, stabilizers, mud pumps, loadcells, strain gauges, drilling instrumentation, power tongs and torque wrenches. It serves various industries, such as healthcare, oil and gas, banking, power and utilities, marine engineering, air transport, military and government. more »

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Petrofac Limited is a service provider to the oil and gas production and processing industry. The Company designs and builds oil and gas facilities; operates, maintains and manages facilities and trains personnel; enhances production, and develops and co-invests in upstream and infrastructure projects. The Company operates through three segments: Engineering & Construction, Engineering & Production Services, and Integrated Energy Services (IES) business. The Engineering & Construction segment provides lump-sum engineering, procurement and construction project execution services to the onshore and offshore oil and gas industry. The Engineering & Production Services includes all reimbursable engineering and production services activities to the oil and gas industry. The Integrated Energy Services business is focused on delivering value from the Company's existing asset portfolio. more »

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  Is LON:MRO fundamentally strong or weak? Find out More »

3 Posts on this Thread show/hide all

lightningtiger 12th Nov '13 1 of 3

O dear, at a quick look a very volatile portfolio with 10 unequal holdings, and over 30% in cash. From September to now it has been extremely volatile with some of your holdings. My tip sell your losses and let your profits run with a stop loss back up.
Have a backup of a choice of stocks to replace failing ones.
From what you say you have top sliced Melrose & added to MUR & QPP. That's good, if it works for you and those two companies are going up in value, fine, well done. There are however 3 costs involved.
Consider selling your worst stock & replacing it with a new one. This way you are with 2 costs involved and more importantly your good stocks are left making more profits for your portfolio.
Personally I hold about 20 stocks with about 5% in each +/- 1% weighting towards the best stocks. This seems to work well for me, because it is less risky with more stocks.
If you are investing into a SIP, then any extra capital injected now will have a dramatic effect on the fund for your future. This is only my opinion, but I hope it helps.My portfolio today best stock+17.1% ,worst stock -4.9%.
Good luck & Cheers from Lightningtiger

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laynab 13th Nov '13 2 of 3

MRO - there seems to be an error in the RS score, shown as +11%, yet it has gone from 223p at the start of the year to over 300 p. Comments?

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lightningtiger 13th Nov '13 3 of 3

I have noticed this RS figure before not "stacking up" to what you think it should be.
I have checked out MRO from another site & it looks good with a BUY valued at 239p, which means it is undervalued and in theory should go up. Stop loss 294p.Last 3 years looks good.
As Paul says DYOR. I am not sure how the RS figure is worked but could find out the reason why. Made another small shuffle today & my portfolio now has 21 stocks.
At the moment I am doing a CAP money course which covers budget, save, & spend. Most people have not got a clue of their total income and all their expenditure. It is a good exercise to do & right it all down & get a monthly total.Hopefully nobody is in debt.
Cheers from Lightningtiger

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