The Overnight Test (and contingency planning)

Fri 27 Oct 2017

By Brian Dennehy

Access Level | public

Portfolio building


climb mountainWe are midst our reporting period for advisory clients of Dennehy Weller & Co (DWC), the FundExpert parent.  For the first time we are building in bespoke contingency plans, and I just want to share some elements of that with you this week (though not in huge detail as time is running short).

Advisory clients tend to be a bit more conservative than many of you.  Plus, DWC don't have discretion, so we don't want to be trying to get hold of a very large number of people, very quickly, as markets are collapsing, where those clients are over-exposed to such falls.

After some great gains in recent years, and notable outperformance versus markets, we are recommending many move to holding 25% of their investment portfolios in cash. And we will flesh out a plan, client by client, as to how cash will be increased still further on certain stock market falls - a stop-loss strategy.  As a DIY investor you don't have to do the former, but you must surely have a plan for the latter - remember The Japan Problem.

One of the problems for DIY investors (and professional investors of all kinds) is that, while it certainly helps to document a clear stop-loss plan, implementation is not easy - many investors simply can't press the "sell" button.  I know that from personal experience - it feels very uncomfortable to sell when prices are falling.  

As Mike Tyson said: "everyone has a plan 'til they get punched in the month".

Practice is a huge help - you get used to the pain!

Some of you will have already had Winning Fund Reports, and will almost certainly have a fund or two on which you can improve - if you haven't had that, you probably have a niggling doubt about a fund or two which you own.  Try The Overnight Test.

Assume someone sold all of your investments tonight without your knowledge, and tomorrow you woke up with 100% in cash.

Here's the test.  You can re-purchase the same investments at no cost.

Which would you re-purchase? What changes would you make?

Now ask yourself the question why aren't you making those changes now?

Go practice some selling now.  Practice makes perfect.



Portfolio building


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