Let me try to summarize the core ideas:
- If an investment becomes so expensive that bond yields are more attractive, sell it.
- If you find another investment significantly more attractive than a current investment, sell it, and buy the new investment.
- Sell into price rises, and buy into price declines, if you can't find economic reasons not to do it.
In other words, trade what you think will perform less well for what you think will do better over your time horizon.
Part of my philosophy in investing is simplifying investment decisionmaking. Good corporate bond managers have an intuitive feel for when yield relationships justify a trade. I have tried to do the same thing with equity investing, looking at when valuation relationships justify a trade. My process where I add new companies four times a year aids the process, because it forces me to evaluate the whole portfolio versus contenders.
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Now, many value investors have been hurt recently because financial stocks have done badly. Included here are many investors that I admire. I have not suffered along with them, but I offer no guarantee for the future. I judged that credit-sensitive financials would be bad investments, and avoided them. Most value investors have a large chunk of their portfolios dedicated to that area. There were few ways to avoid the crisis.
As for non-insurance financials, we haven't worked through the effects of all of the bad lending. Even with cheap "sticker prices" I am still reluctant to go there.
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In closing, I completed my reshaping today. I sold Helmerich & Payne and Alliance Data Systems. I bought CRH plc and Kapstone Paper & Packaging. I like both industries, and both companies are cheap and well-managed.
This takes me a step away from financials and energy, and into two softer materials related names. There will be pricing power in each company before long.
Full disclosure: long KPPC CRH SAFT