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Sold Assurant (and a note on portfolio risk) [ClearOnMoney]
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Investment

Sold Assurant (and a note on portfolio risk)

13 Jan 2011 by Jim Fickett.

I bought Assurant in November on the assumption that a quick rebound after a bad news day was likely. The rebound occurred and I sold today. More broadly, in this highly overvalued market I am looking to reduce risk by only holding stocks that I am very sure are reasonably valued.

Today I sold the position in Assurant that was purchased in November. I have no strong opinion on whether Assurant is currently a good value – most likely it is. But it is not a company I have researched thoroughly. I bought it because a piece of bad news had driven the price down too far, and I sold it because I made the 10% or so I was hoping for when the price partially rebounded.

This sale was in part a risk management move.

Some people view the fraction of the portfolio in equities as a key variable – more equities means higher returns and more risk; fewer equities means lower returns but more safety. This seems wrong to me. If one were to buy a broad stock ETF at current inflated prices, one would be choosing both high risk and likely low returns. On the other hand there are underpriced stocks, and to buy those is to choose decent returns with very little long-term risk, though perhaps some volatility.

In my opinion, then, the way to manage risk is not to choose a percentage of the portfolio in equities, but rather to ensure that the particular stocks (and other investments) owned are reasonably priced. With Assurant, the reason I bought it had expired, and the choice was either spend a good deal of time learning more about the insurance industry (something I don't want to do right now) or let it go.

More broadly,

  • precious metals prices are very high and I am slowly selling down part of my position in gold
  • it is time to re-evaluate my ownership of Cenovus, Heinz, and Schlumberger, all good companies but looking a bit richly valued now

Devon is already up 14% from where I bought it in November, and certainly all energy stocks bear close watching. But I think Devon is still fairly valued.