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KEYPOINTS
Working towards looking for additional stocks to add to my portfolio to reduce the exposure to Fortinet & Axon (both at 25% of my portfolio)
and also for backups for stocks which are at higher valuation in my portfolio, namely Servicenow, Hubspot & Duolingo (3 of them make up 22% of my portfolio)
Hi everyone, today's post is about my near to long term portfolio rebalancing plans to reduce exposures to single stocks and stocks which valuation are slightly high.
Current Portfolio Allocation
As of today, my portfolio is allocated as follows:
Plan 1: Reducing Exposure to Fortinet and Axon
I plan to reduce my holdings in Fortinet and Axon from 25% each to 20% of my portfolio. https://www.maximizations.com/post/portfolio-allocation-grid-building-a-growth-oriented-portfolio-through-a-systematic-approach
Why Reduce Exposure for these 2 stocks?
There are a couple of reasons for reducing my exposure to a single stock:
Diversification: Diversification is a key principle of investing. It helps to spread risk and reduce the impact of any one stock performing poorly. By reducing my holdings in Fortinet and Axon, I'll be better diversified.
Risk Management: Another reason to reduce exposure to a single stock is risk management. If the stock price falls sharply, it will have a smaller impact on the overall portfolio value.
However, this is proven to be more difficult than expected since there are not many companies that provide better mix of growth potential, valuation & fundamentals compared to these 2 stocks.
Alternatively instead of finding replacement outside of my portfolio, I may decide to move more of the weightage towards the other existing stocks in my portfolio when their fundamentals, growth prospect & valuation improve in the future.
Plan 2: Looking for New Investment Opportunities as backups for Servicenow, Hubspot & Duolingo which valuation are the highest in my portfolio.
As of today, when Servicenow, Hubspot & Duolingo's stock price reach their respective all-time high prices, their PS ratio would be at 18X respectively and that is not far from my threshold of 21X.
Why the 21x PS Ratio Threshold?
The PS ratio is a valuation metric that compares a company's stock price to its sales revenue. A high PS ratio can indicate that a stock is overvalued. While this isn't always the case, I use a 21x PS ratio threshold as a starting point for further research.