Ask Colin

I am concerned about the liquidity of some of your current portfolio. I also see Campbell Bros and Ammtec as closely related companies that provide the same services which I again include in liquidity risk.

I share your concern. I have sold a few of the less liquid ones that I was holding in the last month or so. They were mostly small positions (2% of portfolio). One that was 4% of the portfolio took about a week for a buyer to turn up. This is not so bad in a rising market, but dangerous in a falling market. I am keeping this aspect of the portfolio under review.

I share your concern again concerning Campbell Bros and Ammtec. However, recent volume suggests that I could get out on most days, which meets my guideline. You are also correct that they are direct competitors. My reasoning is that this sector is very strong. A while ago I held a couple of competitors in another industry – smaller stocks very like these.

I guess that what you are pointing to is the more aggressive parts of my portfolio. There are other stocks in there which are at the other end of the spectrum, so I feel I have a reasonable balance. Remember the book is called the AGGRESSIVE investor on purpose to highlight these more risky areas of my approach.

With the smaller stocks, the reasoning is that greater price growth is possible than from big lumbering stocks. However, it is also true that their prices are more volatile and there is a tendency to give more back at the end. To focus on what is given back is to focus on the wrong thing. The only focus should be on how much of the trend is captured in the campaign. The key as always is tho get in early and ride the long trend. Those that get in late are often badly hurt by what is given back from the peak.

 

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