Thursday 5 June 2014

Sitting on my hands again

Now that I'm back my mind focuses on the 76% of my funds that remain uninvested. At the beginning of my financial year on 6th April only 19% of my funds were invested. All of the increase to 24% is due to the performance of the invested part of my portfolio. Haven't I done well!

And now I begin to think: what can I do to put the remainder of my money to work? If I had put all of my available funds into GVC I would comfortably made my target profit for he year. But I would have committed the cardinal sin: putting all my eggs in one basket. Share trading is an essentially unpredictable occupation. Nobody, and I mean nobody knows what tomorrow will bring. Never be sucked in by gurus who claim to know. They don't. I don't. I make best guesses and I act on those guesses.

Feeling sure is dangerous because it sucks you into making unwise choices. And putting all ones eggs in one basket is one of those stupid things to do. At present GVC accounts for 20% of my available funds. That is already very dangerous. Lets say, for sake of argument, that the share price halved. I would lose 10% of my portfolio. Not a happy prospect. Ideally I would never put more than 10% of my portfolio into any one share so that a 50% price fall would wipe out 5% of my portfolio. Painful but bearable.

Why do I feel so confident about GVC? PE and yield. When I bought the shares the PE ratio was not much more than about 6 and the yield was into double figures. Not only that but the management had a stated policy of paying out very high dividends as they generated cash profits. Those profits also allowed them to expand by buying companies for cash.

My view is that the risks involved in holding so much of my portfolio in that particular share are justified. However as the price rises the justification grows weaker. A cheap share becomes one with an average price tag. A time will come when I have to divest and look for opportunities elsewhere.

But I already have a problem looking for a home for all that cash. I have to keep reminding myself that this is a time of year when I lose money. Better to stash it and buy when the market feels less toppy.

Its hard to resist temptation when the market continues upwards. But I must remember that the crash, when it comes, comes out of a clear blue sky.

Nevertheless its hard to keep sitting on my hands.


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