Why I Trimmed the US Portfolio: Emotionally Logical

My investment strategy is a constant battle between my gut and my spreadsheets, between my Amygdala and my Prefrontal Cortex, but ultimately, it’s a search for a settled mind.

A: “The volatility is spiking! Uncertainties are heightening again! We have to hit the panic button!”

P: “Steady, A. Look at the data, not the noise. Nothing much has changed since April. This is just noise around the mean.”

A: “But what if April repeats itself? We’ll lose everything we gained this quarter! Will we sit here and watch it burn?”

P: “I don’t know the future, but I know the plan. We sell only when the portfolio hits that 20% return target. There’s no urgency to sacrifice future growth for temporary calm.”

A: “I know the plan, but I still feel the unease.”

P sighed: “Alright. Let’s trim the US portfolio then. It makes logical sense to protect the downside, given how close we are to our goal.”

This internal agreement between the Amygdala and Prefrontal Cortex meant I brought forward my plan to trim the portfolio yesterday.

A was happy this morning, as Arista Networks (NYSE: ANET) reversed from a gain to a loss at the end of the trading session.

But P knew that this was pure luck.

A look at last December’s post on profit-taking, most of the stocks which I trimmed are trading at a much higher price today. In other words, purely optimising for return meant I was better off doing nothing.

I’m not regretting though.

Here’s why.

Prioritising Cash Flow, Not Optimising Return

At the current stage of my life, where my focus is no longer on wealth accumulation, optimising return isn’t my priority.

As mentioned, my portfolio would have been larger now if I didn’t trim my portfolio last December. But this is hindsight and just a snapshot of the situation.

My decision would have appeared to be wise if this conversation had taken place in April when the market crashed.

Which is the correct picture?

The surprising answer is either both or neither.

The Logic of Both and Neither

The argument for both is straightforward.

At the point of sale, I would never know what will happen in the future, hence both are possible outcomes.

It’s like the Schrödinger’s Cat, in which it is both alive and dead until someone opens the box and checks on it.

The neither argument is more important from an investment perspective.

I wasn’t trying to time the market when I decided to trim my portfolio. The sale was a part of my plan to replenish my future cash flow. Hence, how the markets move after my sale is irrelevant to that decision.

Decide with Both Thoughts and Feelings

P is not trying to appease A when it decided to bring forward the plan to trim the US portfolio.

While the process was triggered by A, it wasn’t a rash decision.

There’s already a plan put in place to trim if the portfolio returns more than 20%. And given the portfolio is already hitting above 16% return, the additional reward isn’t so enticing.

Not forgetting this sale made up only 10% of my US portfolio. This means the portfolio is still going to benefit from any potential year-end rally.

The minimal additional return wasn’t worth the price of A’s persistent disquiet (the nagging feeling). This shared decision, validated by P’s logic, was sound for me.

Not all good decisions are completely rational. Sometimes, prioritising peace of mind makes the outcome better for life, even if not for the spreadsheet.

Disclaimer

This content is for informational only. I am not a financial advisor, tax professional, or legal expert, and the information shared here does not constitute personalised financial advice, nor is it a solicitation to buy or sell any securities or financial instruments. All opinions and commentary reflect my personal views and are based on general market commentary.

You are solely responsible for your own financial decisions. Investing involves risk, and any action you take based on the information provided on this blog or channel is strictly at your own risk. Always conduct your own research and due diligence and consult with a qualified, licensed financial professional, tax professional, or legal advisor before making any investment or financial decision.