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COMMENT
Don't be too alarmed if you see some unusual activity in the stock market in the run up to Christmas. It will probably just be fund managers titivating their portfolios. This ritual is known as window dressing, and fund managers may engage in it for a variety of reasons. For instance they may want to dispose of shares that have been weak this year and buy ones that have performed strongly instead. This can give the impression they have been holding the good shares all along! Other managers may just want to get shot of shares that don't fit their investing style. That way, clients can be spared the distress of knowing how their money has been (mis)spent! Unlike fund managers, private investors are accountable to no one apart from themselves. Nevertheless, the end of the calendar year can be good opportunity to have a portfolio clearout too. For example, can you honestly remember why you bought the various shares in your portfolio in the first place? Problem is the story behind a company may have changed considerably since you first bought the shares. It may also be worthwhile taking a look at how many different shares you now own. After all, whenever you add fresh money to your portfolio, it is natural to want to put it to good use as quickly as possible. Consequently, as you buy increasingly more shares for your portfolio it can become unwieldy very quickly. When you are having a clearout, a good question to ask yourself is whether you would buy a share if you did not own it already. In this regard, the sage advice of investing guru Peter Lynch may be of some help. He once said that if you can't summarise in four simple sentences why you should own a share then maybe you shouldn't own it at all. Hedge fund manager Michael Steinhardt likes to take a different approach. He occasionally sells all the shares in his portfolio so he can start his investing anew. Steinhardt reckons that it is quite refreshing to build a portfolio from scratch, free from what he calls wishy-washy legacy holdings. Perhaps a better approach may be a hybrid of Lynch and Steinhardt's investing styles. I occasionally jot down on a sheet of paper a list of shares that I would include in my ideal portfolio. And against the names of each share, I write down four reasons why I should buy them. Then I compare my ideal list with what I already own. And if few of my ideal shares appear in my actual portfolio, then a drastic clearout of Steinhardt proportion may be called for.
