Letting winners run beats over-trimming
The guest argued that one of the biggest mistakes value investors make is selling or trimming high-quality compounders too early due to valuation concerns.
The argument
The guest shared a personal anecdote of their mother's portfolio outperforming their fund by 500 basis points annually over 20 years simply because she never sold her shares of winners like Amazon and Google, whereas the fund actively trimmed positions as they grew.
The thesis, stress-tested
✓ What validates it
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▸ Risks discussed
- ▸Increased portfolio volatility and idiosyncratic risk from concentration
- ▸Regulatory diversification limits under the Investment Company Act of 1940
Hear it yourself
"And you can have an environment like this where the companies that are out of the spotlight, nobody's paying attention to. You know, they're not in the glamorous parts of the market that's very concentrated, and you could find real opportunities to buy buy what I would call sort of classic value names, at a time when there's enormous indifference. And those companies don't have optimism built in, and yet they have resilient, proven business models. And so, you know, 1999 is not a terrible analogy for where we are now. If you saw that the market was gonna be down for the next five years, you could say, oh, I better go to cash. But, actually, we were up quite a bit in the next five years."