This week one of my clients reminds me that one of the most important prerogative for a wealth manager is to inform them continioulsy and listen to their fears !
In a moment of panic, forgetting the strategy and that invest in stocks requires time ....that an investor asked me to sell the worst performing securities from its portoflio.
Who has never had the idea to sell the worst perfoming stock of his portfolio or rather the opposite to buy or hold those that achieved good results?
When the portfolio manager and the analysts are still positive on a particular stock or a sector I always take time with the customer to analyze the situation through the following points in order to help him to take the right decision.
1. Asset Allocation and Strategy:
Never forget that if your portfolio is diversified and that you have implemented a good strategy time will work for you and sometimes you'll face bad moments and if you wait most of the time you'll recover.
2...but maybe it's just a problem of Strategy ?
If you think your strategy is bad it means probably that your portfolio is too volatile and that you're not ready to support temporary losses then maybe it's time to change your portfolio strategy and reduce the level of risk. It's easy, you can decide with your portoflio manager to switch the whole portfolio to a more defensive strategy (most of the times the cost are not so expensive and you'll sleep better ll!)
3. Past performances:
As an investor you probably know that sentence out of all investment disclaimers :"past performance is not a reliable indicator of future results". It means that it is not because one of your stocks performed well or badly during the last months that you'll observe the same results in the coming months.
4. The panic button;
In every life circumpstances it's better to avoid a reaction under a panic moment. Firstly consider the global situation of your portfolio and listen to your portofolio manager that will provide you objective informations that will help you to take the best decision. Secondly, don't forget that when you invest in a position you need time.
Private investors sometimes forget that most of the time there are objective reasons why their financial institution hold a position that has had bad performances : Low Level of debt, very attractive level of valorisation, future positive performances expected (launch of a new product), temporary negative impact of a geographical or sectorial problem (oil, currency fluctuation, war). Just ask why they hold the position when you are under panic.
6. Never listen to the rumors:
People sometimes want to sell a stock because they have heard something bad about it, but maybe that rumor started from a positive news (yes that happens).
7. The point of regret:
During my carreer I experienced that, most of the time, when people reacted under panic and pushed on the sell buton, only a few days after the stock or the market jumped up..like a mysterious link between their panic and the stock market.
8. If you sell a bad position what will you do with the money ?
Imagine that you take the decisions to sell you worst perfoming position of your portfolio. So what now? Will you wait for a better period and accept the risk of market timing which could happen if you lose the best months of the market?
There are many other points to analyse but in conclusion I'll say that if you have a good diversification, that you are confident in your strategy and your potfolio manager never react in panic and analyse the situation. Of course there are companies going bankrupt every day, that's why your portfolio manager will help you to identify the real risk on a particular stock.
It was a pleasure to share that experience with you and I hope it will be useful.