What is a better way to analyze a portfolio if I want to compare the percentage holdings of each stock and want to rebalance my portfolio?
- Basis the Value at cost
- Basis the Value at market price
Both these approaches will give me a different answer as to which is the biggest constituent of my portfolio. IMO, I think the second option is a better approach as it considers the mark-to-market/current state of the portfolio.
Appreciate if other members can share how they approach the rebalancing of their portfolio.
It has to be at current value. Value at cost is a thing of the past.
Valuing assets at cost is for public companies…not individuals.
Accounting Rules vs Portfolio Rebalancing Principles
If valuing at current value…how do you guys proceed for re balancing the portfolio…for example , I am holding Avanti as 3-4% at cost but it I considers the market value , it could be more than 15 %…similarly some pharma stocks which I bought last year ha more allocation when we see in terms of cost but less in terms of current value.
So how do you guys arrive at a decision. Will you sell the multibagger just because its not valued at more than 15-20% of your overall portfolio ? How do you allocate the capital efficiently so that you can mitigate the risks as well
Pointing to another thread for my response to your query:
Portfolio Recommendation Without Price
This is the reason I asked the question. I have some stocks that have not performed well recently. At the time of investing these stocks constituted a higher percentage of my portfolio. But going by the market value, they show a much smaller percentage. Going solely by the CMP, one would be tempted to add more of such stocks that have been beaten down.
Wonder if one can do an average of the buy price and the CMP or look at pie-charts at both price points to get a better understanding of the portfolio contents.
Current market value is a better approach. Your portfolio allocation using value at cost will change in next few years, say 5 years. However, the market value price approach is dynamic.
If we reduce or trim your winning stocks due to pf rebalancing, are you not losing on winners? As long as the initial thesis is working fine, why to reduce the winners?