Trading Rebalancing in a pre-recessionary market

Whilst debate can be had about whether we are in a pre-recessionary market, that's not what this post is about.

The specific question I have is (2 years into share investing), should I sell my winners (or a good % of them, some are 200-400% up) and have already dropped up to 30% and hold the cash for when things level out? I still believe in the businesses long term.

As for losers (some 30% down), if I believe in the businesses, do I hold, or sell and buy back in when on uptrend and use the cash elsewhere?

This is a strategy discussion for a relative newbie rather than specific stocks.

Thanks

 

Well, if you are sure it's going to fall further...... but then, why not trade futures?

Consider the tax implications of selling something that's gone up 200-400%.

 

Thanks @Trainee, I'm still getting my head around moving averages, volumes and RSI. Futures, shorts, options, puts, etc. are still a foreign language to me. Maybe one day in the future (next cycle maybe), feels too soon for me personally now (knowledge, not cycle).

Re tax implications, figure if I pay 10-15% tax in super (10% for holdings of more than 12 months, 15% for les than 12 months), or 30% in company (we have holdings in both), the opportunity cost of further falls and rebalancing into other better holding and/or recovering holdings (e.g. gold) may create a negative total return. I would do the math when calculating, however this is a specific analysis on a holding by holding basis rather than a strategic assessment of the best course of action in a particular market cycle.

 

The only way you can be sure what action gives you a better outcome is if you can predict future prices.
Can you? And can you act in time? Selling and waiting to buy back cheaper later requires TWO timed actions.

If you can't, you also run the opposite risk (e.g. selling, paying taxes, and then buying back too late).

 

So do I take it @Trainee that the strategy is buy and hold long term and ride out cycles?

Do you think this should change if the analysis of the business changes (e.g. tech stock in growth mode that grew 300% and is now in red? We believe it will recover in normal market, however could also dilute through capital raising or go broke if recession lasts too long.

 

Personal view is selling and then buying back after it falls is a dangerous strategy because it requires multiple actions to be timed correctly. But what makes sense for an index fund may not make sense for more volatile stuff.

But it really depends on how good your predictions are. You might be able to to predict specific price movements. My personal view is that I can't.

The question might be, do you understand that by selling with a view to buying it back later, that you would need to be able to sell at the right time, AND buy back at the right time?

 

My thoughts are that, assuming we are looking at a pre recessionary economy with rising interest rates, sell down shares in companies that have their product in development, are not (yet) profitable or looking to raise capital (eg miners looking to finance a mine). Keep profitable companies, lics, efts etc.

 

Rarely does an individual end up patting themselves on the back for selling a winner they still believe in.

If you still belive in the losers maybe hold them unless there is a CGT benefit in selling to offest gains elsewhere.

FYI I was (still am) holding XRO and ALU amongst other when even I thought the prices were getting ridiculous. I dont regret holding them still and unless something materially changes (other than the share price) Ill continue to hold.