88V8 wrote:One also sees this in microcosm when rebalancing a single-asset portfolio. TJH with his regular portfolio adjustments on HYPP, for example. Selling one's winners, as it's described by those who aren't organised or disciplined enough to do it, including me.
I know some who utilise virtual holdings as part of their portfolio. They don't own a particular asset, such as long dated Gilts, but would like to - "but not at present relatively high valuations". So they add virtual Gilts, record the percentage weightings of each asset with those virtual holdings included, and thereafter rebalance yearly/whenever to realign portfolio weightings towards those percentage levels.
£67,000 stock, £33,000 cash, £100,000 portfolio value. Want some 20 year gilts added to that, so perhaps add £33,000 of virtual 20 year gilt holdings. That portfolio has 50% stock, 25% cash, 25% gilts weightings, £133,000 portfolio value, of which £33,000 is virtual. .... Later and Gilt prices dive/yields rise, perhaps (for simplicity) where cash and stock values had remained the same, £67,000 stock value, £33,000 cash, but where Gilt values had halved down to £16,500. At that level the virtual portfolio has 58% stock, 28% cash, 14% Gilts. Target weightings of 50/25/25 involves selling some stock shares, reducing cash, to add to Gilts. £8750 less stock value, £3875 less cash value according to my reckoning. Which combined is added to (real/actual) Gilts. Gilts has now transitioned from being all virtual holdings, to a combination of virtual and actual holdings (£12.6K of actual, £16.5K of virtual). Tends to work best when you fix the review date, such as on a single calendar date each year. Still some decision work involved, as you have the option to trade all virtually, all for real, or a combination of both. But that can nudge you in the appropriate direction such as how much and when to add actual long dated gilts at times when prices had declined. Seems to work for some who might otherwise look back with regrets of missed opportunities. In some cases you may have no other choice other than to trade virtual holdings, such as if Gilts are all virtual and they're up, such that selling some is indicated, then that may involve reducing those virtual Gilt holdings to add virtual to stocks and/or cash holdings.
I know of one who uses that very broadly, and with considerable success, where he uses Robert Lichello's AIM method applied to many positions separately/individually that are all totally virtual. He reviews that regularly/ongoing and that throws off signals of when and how much actual holdings to add, that he pairs with actual holdings that are closest to their 'reduce' level.