Loading ...An Exercise in Imagination
- Imagine September 2017 is September 2007.
- You know (like you knew in September 2007) the stock market is a few months away from its peak and the crash is imminent (just imagine).
- You know all your stocks – good or bad – will also fall in the coming crash (hard, but please imagine). Though the good ones will again rise like Phoenix and the bad ones will continue to lose for the next ten years (yes, imagine the next ten years).
- Imagining this future you already know about, what should you be doing now, in September 2017…I mean, September 2007?
- Imagining that may lose a lot of money (some of it permanently) over the next few months, and also over the next ten years (again, some of it permanently), how would you position your portfolio so that you don’t lose much, and in fact gain a lot given that you also know the broader market is going to double over the next ten years?
- Check your existing portfolio, sell all your stocks mentally, and then look at each stock and answer this question – “If this stock was not in my portfolio already, would I buy it today…especially when I know what’s coming in the next few months?” If the answer is no, question what that stock is doing in your portfolio?
One rule of the above exercise is that, even with the benefit of hindsight, you cannot time the market i.e., sell everything four months later and buy again in March 2019 (as if it was March 2009). You just don’t know when that peak and bottom would appear, only that it would all happen in the next eighteen months.
Is your head spinning already? When I was going through this exercise over the last few weeks, mine was. Not because this exercise was something difficult to do, but just for the amazing insights it left me with after I finished it off. And a few action points – I ended up reducing allocation in a couple of stocks and increasing allocation in a couple of others that were already in my portfolio. Fortunately, I had nothing to sell in terms of bad business quality.