Anil: So Gyan, what are your plans for the weekend?

Gyan: Nothing much, watch a movie and also I need to a look at my investment portfolio. It has been some time and I may need to rebalance it.

Anil: Rebalance your portfolio? I simply buy and never look back. You should also not look back, Warren Buffett says so.

Gyan: Portfolio rebalancing does not mean looking back. It is about matching your portfolio to individual needs and priorities after market movements change the original allocations. Considering how equities have run up in the last one year, it makes me happy and little bit nervous as well. I never asked to be 80/20 guy , 80 in equity and 20 in debt. I am a graduate of “Equity Classes - 2008” and I prefer 60/40 style.

Anil: Never thought of it this way. So you are always monitoring and rebalancing? Sounds intensive.

Gyan: My father used a simple and strict method. He rebalanced in the 1st week of every six months.

This way he did not incur regular brokerages and allowed for growing asset classes to rise for six months and reinvested them in asset classes which did not grow. I prefer to do it when any of the asset class gets bigger in the overall portfolio. Right now my equity exposure is 69 per cent and I want to trim it back to 60 per cent and invest the excess 9 per cent across gold, MFs, debt securities and fixed deposits.

Anil: Okay, sounds reasonable. So assets are allowed to grow and then trimmed back to reinvest the proceeds in other asset classes, either periodically or based on thresholds.

So, this applies to individual stocks also right?

Gyan: Sure does, looking at my demat account, IT and Pharma stocks have grown sharply.

I have to read more and rebalance within equity as well as I am not willing to go beyond 15 per cent for any sector.

Anil: Are you willing to sell securities which are yielding good returns?

Gyan: Yes, that’s why individual risk profile is important. I believe in mean reversion, one asset class cannot constantly grow while others are left behind.

So I sell what is high and buy what is low, Warren must have said something along these lines as well right.

Anil: I see, a sort of rule based profit booking while sticking to one’s portfolio mix.

You have given me much thought for the weekend. I need to analyse my portfolio now. Thanks for the work.

Gyan: Anytime Anil.

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