How & when do you stop running your winners?

Aminatidi

I'd been thinking of de-risking for a while and last year when Trump did his April tariff thing I decided I didn't really want to be hanging off every word he said so after the initial bounce-back it was the catalyst to sell what was, at that point, a 100% FTSE Global All Cap ISA down and reinvest in equal amounts of the following:

• Hawksmoor Distribution
• Orbis Cautious
• BNY Multi-Asset Balanced
• Artemis Monthly Distribution

And then I left it to it.

Yes fees - I know - no need to mention it.

However it's done very well, better than if I'd left the money in FTSE Global All Cap, and I've slept a lot better.

Challenge I've got now is the performance always feels a little unsustainable for a multi-asset approach.

New money is likely to go into a SIPP or ISA which is an II model portfolio.

My question around the ISA is its clearly very active but right now it's doing the job and people generally say to run your winners.

What sort of timescales and criteria do people use to determine when an active portfolio is NOT doing the job any more?

Feels like there's a balance to be struck between not making changes based on short term noise but also not waking up one day finding you've waited too long without doing anything.

InvesterJones

Sounds like trading rather than investing to me. I don't think I've ever seen anything about running winners here.

For investing it's pretty simple - you assess your assets based on what risk you need to take to meet your target. If you're a long way ahead of schedule then you might consider if you still need the same risk going forwards, so dropping to a 60:40 from 100% equities for example. But importantly it's about looking forwards, not being swayed by recency bias.

thunderroad88

If they have the diversification you require from a geographic, asset class and factor point of view then I’d leave them be. Why be afraid of success? While they continue to beat whatever benchmark you set yourself (in this case VAFTGAG) why change? If it ain’t broke…

thunderroad88

https://forums.moneysavingexpert.com/discussion/comment/81903337#Comment_81903337

Sure, but once you’ve decided on your target, every investment (active or passive) is simply a horse in the race, to carry on with the “winners” analogy. I wouldn’t call it trading to periodically (3 monthly for me) monitor your horses and cull any that are slowing down or lagging the field. Trading seems to be a rather disparaging term aimed by those who seem wedded to the concept of invest and hold come what may at others who are perhaps simply willing to be more adaptable and less reluctant to tolerate average or underperformance for as long.

The only true adjudicator of how successful your investment strategy has been is your bottom line, and we all have different views on what does or doesn’t work.

InvesterJones

https://forums.moneysavingexpert.com/discussion/comment/81903400#Comment_81903400

I'm not against periodic adjustments, especially when made in light of reassessment of risk tolerance/need. But changing because of recent underperformance indicates poor choice/understanding when making the investments - we all do make mistakes of course, but one risks compounding them if one continues to base the decision on recent performance. Investing for above inflation growth does involve tolerating volatility, i.e. periods, sometimes lengthy, of underperformance. Doing so is more likely to help you reach your goals than changing around - but if the volatility is too much to stomach, the risk tolerance was wrong and you should assess your asset balance.

thunderroad88

But the OP is questioning whether he should change because of over performance (or winners), that it’s been a fluke and may suddenly change. I wouldn’t see any logic in changing unless something in the macro environment has changed, or his choices have consistently underperformed his target benchmark, or his own risk tolerance has changed. How long is consistently? Ah well, that’s what he really wants to know, and I’m not sure that’s answerable. I’d certainly be asking questions after three months..

Aminatidi

My initial risk tolerance was wrong I just spent a bit too long procrastinating before actually doing anything about it.

So in my situation the rough benchmark is LS60 - absolutely not FTSE Global All Cap.

I'm not asking if I should change anything right now because right now that portfolio is working very well.

I am interested when you've had a period of outperformance especially with active choices what you do to measure/determine when that outperformance is over?

InvesterJones

https://forums.moneysavingexpert.com/discussion/comment/81903635#Comment_81903635

Well like I said it's about checking process against your target date/amount, you can assess whether you're on track and then make a decision whether you continue and so maybe meet it sooner, or dial down the risk to further improve the chances of meeting the target when you need to. So there isn't a determination of when the outperformance is over, you just assess the situation going forward, not looking at your recent past.

Linton

https://forums.moneysavingexpert.com/discussion/comment/81903635#Comment_81903635

You cant predict the future. There is little correlation between a fund's performance against its market in one year and the next. At different times different areas of the overall market may perform particularly well for a while but this is unpredictable. The funds which happen to hold investments in the highest performing areas will tend to perform better than those that dont..

Rather than try to predict next years winners and focus on those it is likely to be more profitable in the long term to hold everything.

Bostonerimus1

I don't have any comments that will help, but I believe that before anyone invests they should know at what point they will rebalanced, take profits or minimize losses. Following some predefined rules will hopefully avoid panic actions.

LHW99

I do have a rule of part selling down if a holding becomes to large a part of my portfolio. Hasn't happened much, (a couple of times in 10 years I think) as generally the holdings go up and down without an overly wide variation in the relative values.