Wednesday, July 10, 2013

Portfolio Update July 10, 2013 - Valuation

Here are the current holdings in the Chump IRA:



I was revisiting one of my first posts for this blog, my "rules" for the portfolio.  They still seem pretty sound after about a year, but I'm not sticking to them rigidly.  One of the rules I wanted to check is about reducing a position once it gets 15% over what I deem to be fair value.  The summary above shows each of my holdings PE today and the average PE for the past 5 years.  

Going through the list, I'm looking for holdings that violate the 15% overvaluation rule:
  • ADM is 36% over fair value PE
  • GD is 20.6% over fair value PE
  • MO is 22.2% over fair value PE
  • COP is 19% over fair value PE
  • EMR is 16.3% over fair value PE
  • JNJ is 25.6% over fair value PE
And of course, O is way over fair value FFO, but was when I bought a small entry position, so I'll ignore that one.

My rule states that once a holding hits these levels of overvaluation, I'll put in a stop loss for the excess $ over my purchase price, or write covered calls, or just trim.  

So, now the big question, do I trim these down?  If so, do I sit on the cash and wait for a correction? For how long?  If I don't have a good replacement for each, then why do it?  Or perhaps I could build the positions of the other holdings that are still slightly undervalued?

I may need another rule about what to do with the funds generated from the liquidation or trimming of a holding.  I'm going to think about this for a few days before I make a decision.

That's all for now, 

Chump


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