Saturday, July 16, 2011

Before the storm


When people expect a hurricane they don't abandon their house, but they cover up the windows and remove loose ends. The same is true for your investment portfolio. It is possible that the U.S. debt ceiling debacle goes sour. So we must take care of loose ends. In this case, the investor reviews his portfolio and checks for investments that have lost relevance:
  1. A remnant from a spin-off.
  2. An investment that has not grown along with the portfolio and that even in the event of significant appreciation would have virtually no impact on total portfolio performance.
  3. A lost cause – Yellow Pages comes to mind.
  4. Any investment where you lost confidence in management or where you do no longer expect real performance.
I tied up loose ends this weekend and added the proceeds to my cash position. If the ceiling debt deadline passes I have a war chest ready for buying opportunities. In the meantime I also have crystallized capital losses that may reduce my yearend tax bill.

Another matter: If you work with Canadian and U.S. dollar accounts transfer all cash to Canadian dollars as it is most likely to benefit from this debacle. When using leverage in Canadian dollars, more aggressive investors may even consider paying off their Canadian debt with U.S. dollars.
House cleaning is painful as you're confronted with past mistakes and that is like pulling teeth. Swallow your pride and take the pill.

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