New Investments - The Search Begins: PART ONE - PORTFOLIO REVIEW

Why Now?  The Background Story

In recent months, most of my time has been involved in things other than investing.  Given the pending end of the boating and golfing season, I'll have more to devote to investing.

It's been fun: we've seen interesting things and met wonderful people ... and I had the opportunity to take in my annual bout of long distance travel with a month-long sojourn on the Caminos in Spain this spring, followed by three weeks in England.

Here are a few of the Landmark Trust places in England that we enjoyed.

Laughton Place, built in 1534, is the remnant of an extensive manor house.  Surrounded by a moat, you have to navigate through flocks of sheep to get to this rather remote location.  The reflection of hundreds of glowing eyes in the headlights at night brought forward a few ideas about horror flicks.  Sure beats the faded glory of nearby Brighton.

Built in the 1820's by one of England's richest commoners to house his remarkable collections, Beckford's Tower, near Bath, has sumptuous interiors and access to a guilded belvedere which soars above the surrounding landscape: no need to charter a balloon to take in what was once characterized as the finest view in Europe.

It's hard to believe that Cloth Fair, in the heart of London, faces on a street where the only sound at night is the footfalls of a few individuals.  It is one of the few survivors of the Great Fire of 1666 and was once the home of one of England's beloved poet laureates.  It's our favourite bolthole in London.

Lord Harris built his whimsy in 1800.  Nothing better than to down a bottle of plonk on the roof while watching the locals play cricket on the adjacent pitch on a lazy spring afternoon.   Re other wildlife: the grounds teem with pheasants and rabbits.

Now to Investing - Portfolio Review

I have the sense that it's time now to "take the pulse" and renew the search for new investments.  Before sallying forth on a hunt for new investments, it's prudent to start by getting one's financial home in shape.

I'm reviewing our portfolios with the following objectives in mind:

• retain stalwart members of my crew - those reliable characters who can weather bad times 
• take profits to preserve some wealth that has been gained and which may be lost in the event of a market downturn which I feel is coming - also to build a stash of cash to invest during the early stage of a market recovery
• weed out poor performers

Due to a concern about the future state of the market (see previous posts), I have reduced my positions to the point where I am now more than 50 percent in cash.  This process is continuing in the following way:

Review of the Resilience of Existing Holdings

I am reviewing my holdings with a view to retaining those which are defensive in nature and which should get hit relatively lightly in the event of a market meltdown.  As usual, I look for companies with the following characteristics:

• great financials with little or no debt
• great management that has navigated successfully in "bad times"
• a market for products/services which is relatively unaffected in economic recessions
• a sustainable competitive advantage
• preferably, a dividend income stream which should reduce the pain of a drop in the stock price. 

Taking Profits

A few holdings have run up substantially.  I always keep in mind the adage that no one gets poor by taking profits.  Since I do not believe in financial augury (the witchcraft associated with forward earnings and stock pricing) I simply harvest what has grown without regard for the state of future growing conditions.  

Selling Losers

By far, this is the hardest task as one has to face the personal consequences of "being wrong".  There is always hope that the wounded will recover but, most often, I've learned that the wait can be futile.  Here are a few things that I look at when triaging the wounded:

• abrupt changes in management
• significantly lower income from products and services (changed markets, outdated products etc.)
• the advent of more agile competitors
• weak balance sheets (e.g. increased debt)
• stupid management decisions which are not in the interest of share owners. 

PART TWO, the next post, will address my approach to the hunt for new investments.