NZT Followup

Yesterday, in my post about selling NZT, I mentioned that the trade may come as a surprise, especially a reader who emailed me a week ago about the stock. After I posted the article the same reader emailed me back suggesting that a stop order 10-15% below the high could have “prevented a lot of grief.”

He is certainly not wrong and in hindsight my handling of the name is open to second guessing.

His use of the word grief makes me wonder how much he has in the name. In a diversified portfolio some stocks will go down. It might be reasonable to question whether this person has too much in the name.

This is constructive for anyone managing their own portfolio. If a 30% drop in one component would cause too much damage (this is subjective) to the overall portfolio, you have too much. Throughout the history of this blog I have been clear that 3% is the most I put into an individual stock. A 30% drop in one name with a 3% weight is a 1% drag on the portfolio. This does not cause me any grief or other emotion.

Perhaps you can tolerate 5% in one name or perhaps 1%, either way getting in touch with this is very important if you plan to manage your portfolio.

2 Comments

  1. Do you think the recent retraction in NZT is all currency? Or do you think it has anything to do with the potential “unbundling” of DSL that may be required by the NZ regulators to facilitate competition? Possibly even splitting NZT into separate retail and wholesale companies. No position in NZT yet.

    Reply
  2. I think the market is more concerned about the bigger picture topdown stuff but since I am more of a topdown manager I may be biased.

    Reply

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