2024 has been a great year for my Stocks and Shares ISA. Thanks to some prudent purchases in 2022 and 2023, I can now pat myself on the back as my portfolio has generated almost a 28% total return year-to-date. By comparison, the FTSE 100 is only up around 10%, with the S&P 500 coming in at a more impressive but still smaller 25%.
It’s a wonderful feeling. And one shared by many contrarian investors who capitalised on the bargains of the 2022 stock market correction. However, with so much growth achieved, what am I doing now to try and maintain this upward momentum?
Watering the flowers and cutting the weeds
Despite having 24 stocks in my ISA, almost 65% of my portfolio is concentrated in my top five holdings: Shopify, Arista Networks, Alpha Group International, Intuitive Surgical, and MasterCard. Needless to say, this level of concentration is pretty extreme. And it results in a lot of volatility that most investors wouldn’t be comfortable with.
However, this wasn’t intentional. Instead it was a naturally occurring event as all five companies simply dominated their respective industries.
After such tremendous gains, most investment advisors would advocate selling some shares and reallocating the capital to other businesses. That’s sound advice for ensuring investors stay within their risk tolerance limits while maximising the benefits of diversification.
However, I have the luxury of a 20-year+ time horizon and a strong stomach for volatility. As such, I prefer taking a page out of Peter Lynch’s book and selling my losers rather than my winners.
Bye bye underperformers
Even after the most rigorous research and analysis, not every investment works out. And two businesses I decided to let go of this year were Etsy and Frontier Developments.
Etsy’s initial performance was pretty admirable, thriving throughout the pandemic and into 2021. However, following the economic downturn paired with a seller revolt and surging competition from China’s Temu, the firm just wasn’t delivering. It’s a similar story to Frontier. The games development studio enjoyed terrific momentum that eventually collapsed as new releases failed to impress players over and over again.
Both firms certainly have the potential to bounce back in the long run. But rather than holding onto these weeds, I decided to cut them and reallocate them to plant new potential flowers. That’s how CrowdStrike (NASDAQ:CRWD) became one of the latest additions to my Stocks and Shares ISA.
The cybersecurity giant landed itself into some pretty hot water recently with a botched IT update that crashed millions of devices globally during the summer. But with management rolling out a quick fix and dedicated support staff to help customers restore their systems, it seems the risk of customer attrition has been mitigated.
Despite this, the growth stock still trades at a discount versus July. And while the valuation looks rich, the price seems justified if management delivers on its target of 28%-32% operating margins and up to 38% free cash flow margins.
Of course, that’s far from guaranteed. And if the cybersecurity group fails in its pursuit, then the stock could be in for quite a tumble. That’s why I’ve only opened a small 1.3% position. But should it start delivering on its promises, I plan to continue watering it with fresh capital throughout 2025 and beyond.
