Here`s a $125 million investment lesson
- If you hold an asset, you're really buying it.
- You could have used the cash for a different asset.
- So ask yourself if you'd buy the asset again.
- If the answer is no, maybe sell and pivot elsewhere.
The portfolio held 70 stock positions… and I had no clue about most of them. I had inherited US$125 million in dozens of shares from a previous portfolio manager, and I hadn't yet gotten up to speed on them
I knew that I wasn't "holding" these positions. Being handed over the reins I was effectively "buying" them… every moment that they were in the portfolio, I was "buying" them.
It was one of the most important investment lessons I ever learned.
Would you buy your assets again - today?
Around 12 years ago, I became the manager of a US$125 million hedge fund. The fund had been around for three years. The portfolio manager I was taking over from had put together a diverse portfolio of stocks, bonds, currencies and options across a dozen different markets and twice as many countries.
Each position — that is, every asset that the fund owned — had a history… a narrative, and a reason that it was there. It might have been because a stock was cheap, or the company's management was fantastic, or a big dividend was coming up, or that it was an unloved and beaten up stock that was coming back into favour.
On my first day on the job, my boss told me, "I'd like you to look at every position in the portfolio. Learn the story, assess the valuation and understand why it's in the portfolio. And then ask yourself if you would buy it today, right now. Because by having it in the portfolio, that's what you're doing."
At first, I didn't understand what he meant. A stock in the portfolio was a holding… so the portfolio was, well, holding it. It had already been bought at some point in the past. I told myself I wasn't the person responsible for the stock "being bought" now — someone else already had.
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