Selling the dogs
Hi Dynamo
What you are proposing is what happens in practice . Say you start off with 10 shares - each with 10% of your portfolio. These shares will grow and decline at different rates. So after a while, your portfolio will have a distribution like the following; 20, 15,10,10, 10,9,8,8, 8,2
Now what do you do ? Personally, I would be inclined to leave it. However, if a stock represented more than 20% of my portfolio, I would sell it back down to 10%, so that my portfolio doesn't become too dependent on one big stock.
Where would you invest fresh cash or the proceeds of selling off half your top share ? Well the share which represents 2% of your portfolio no longer qualifies as a top 10 share, so you won't be buying it.. So you buy the latest entry into the top 10. I like a neat little portfolio, so when I am buying new shares, I tend to get rid of the scraps which will no longer have a significant effect on my portfolio. So I would sell off the share which represents the 2% of my portfolio. But they have a habit of turning into stars just after you sell them. The last share I sold off was Glanbia which has turned into a very good recent performer.
I don't sell a share because it has slipped out of the Top Ten or because I make a commercial judgement that it is no longer a good share. I sell it when it is no longer a significant part of my portfolio and I am rebalancing my portfolio due to fresh cash.