Actionable insights — Portfolio Update: Post-Labor Day Edition

1. Run a three-part post-mortem before deciding what to do with a losing position

1. Separate the review from the decision. First establish what you got wrong, and only then ask whether to hold, add or exit — otherwise the exit decision is really just an emotional reaction to the drawdown.
2. Test the entry: what evidence convinced you the downside was bounded? Write the sentence out. If it reduces to "it has already fallen a lot," that is an anchor, not an analysis.
3. Test the discipline: did the position violate a rule you already hold? Name the rule and the date it was broken, not just the outcome.
4. Test the follow-through: what does your process normally do after a position halves — average in, stop out, re-underwrite? If you did not do it, ask why, because that answer is usually the transferable one.
5. Publish the errors in the same note as the action. A post-mortem kept private gets edited by hindsight; one that is written down constrains the next entry.

• Any position where your bull case now rests mainly on how far it has already fallen. That is the same anchoring error, and it is visible in your own notes before it is visible in the price.

2. Treat a support break with exactly the weight you give a breakout

1. Identify the level a stock has repeatedly held on the way down over multiple years — the mirror image of a multi-year ceiling.
2. When it decisively breaks below that level, treat the signal as symmetric with an upside range expansion: informative about the next several quarters, not noise.
3. Apply it as a veto on adding, not merely as a sell trigger. A cheap stock that has just lost multi-year support is a stock whose cheapness may be about to get cheaper.
4. If you buy anyway, record that you are overriding the rule and say what would prove you right — otherwise the override is invisible until the post-mortem.
5. Note the asymmetry in how far the damage runs: by the time you notice, much of the decline can already be behind you, which is an argument for acting at the break, not after it.

• Names in the book currently sitting on a multi-year support shelf. Decide now, in writing, what you will do if it breaks — the decision is much harder to make honestly on the day.

3. Exit on a change in pricing power, not on the drawdown — and go looking for the fact that would break your thesis

1. Write down, when you buy, the one business characteristic the thesis depends on. For a dominant services franchise, it is almost always the ability to hold price.
2. Monitor for evidence about that characteristic specifically, not for evidence about the share price. A falling stock is not information; a customer demanding a discount is.
3. Distinguish volume risk from price risk. Customers leaving is visible and often manageable; customers staying at lower prices is quieter and hits margins directly — and the second is the more damaging of the two.
4. When a credible source reports it, cross-check with an independent tool before acting, so the decision does not rest on one article.
5. If the characteristic is impaired, sell even if the valuation still argues for holding. Say so explicitly — cheapness that depends on a franchise you no longer trust is not a margin of safety.

• Discounting that shows up in reported numbers as flat revenue with falling margins, or as "pricing headwinds" in a call transcript. Also watch renewal-rate and bookings language, which usually softens a quarter or two before margins do.

4. Raise cash out of the position that has round-tripped to breakeven

1. When you want to hold more cash, do not sell mechanically across the book. Look first for a position whose exit cost is lowest — no realised loss to admit, no large gain to tax.
2. A holding that fell hard and recovered to your cost is the cheapest cash in the portfolio. It also, conveniently, forces the thesis review you have been postponing.
3. Pair the sale with a stated reason to want cash — a valuation view, a calendar risk, or a specific event — so the cash has a purpose and does not simply drift back into the market.
4. Name the calendar risks explicitly and treat them as position-sizing inputs rather than forecasts: seasonal weakness, a contested election, a policy decision.
5. Act while the exit is still cheap. The window in which a recovered loser can be sold "pain-free" closes in both directions.

• Positions currently within a few percent of cost after a large drawdown — they are your cheapest source of cash. Screen for them deliberately rather than noticing them by accident.

5. Require both legs — an upside range expansion and a valuation — before entering

1. Leg one, technical: the price has broken above a ceiling that has capped it for years, ideally with a new multi-year high in prospect. That is the market conceding something has changed.
2. Leg two, fundamental: the security is demonstrably cheap on cash terms at the moment of the breakout — a low earnings multiple, a high and covered yield, or both.
3. Insist on the conjunction. A breakout without value is momentum; value without a breakout is a value trap that can stay one for years. "That's almost always a winning combination" is the claim being made about the pair, not either half.
4. Prefer the case where the earnings have grown but the price has not re-rated — the gap between an old high and much higher current profits is the room the trade needs.
5. Do not require the name to be exciting. The whole point of the screen is that it finds securities nobody wants to talk about.

• Securities whose per-share earnings have multiplied since a long-ago price peak they still have not reclaimed, and which are now pressing that old ceiling. That is the specific shape this screen is looking for.

6. Audit the call you nearly made, not just the ones you made

1. Keep a record of the ideas you looked at and held back on, with the stated reason for hesitating.
2. Revisit them on the same schedule as your positions, and ask whether the reason for hesitating was a real risk or an artefact of the signal not having fired yet.
3. Publish the ones where the hesitation was wrong. A near-miss reveals more about the process than a winner does, because the analysis was right and only the trigger discipline failed.
4. Use the pattern to calibrate: if the same hesitation keeps costing you, the rule needs adjusting — e.g. permitting a partial position ahead of a confirmed breakout.

• The recurring shape of your own hesitations. If they cluster on "not confirmed yet," you are systematically paying for confirmation — worth pricing that cost rather than assuming it is free.

7. Decide a trim on after-tax terms, not pre-tax

1. Start with the pre-tax view and be honest about it: after a large run, ask what forward return is realistic. "A lot less" is an acceptable answer and is not by itself a sell.
2. Then ask where the position is held, because the answer can reverse the decision. Some structures are penalised in tax-deferred accounts and favoured in taxable ones.
3. For pass-through vehicles, account for recapture: distributions that were sheltered on the way in are clawed back on sale. Size that (here, typically 60–70% of distributions received) before assuming the exit price is the proceeds.
4. Weigh the step-up in basis at death for older holders — it erases both the capital gain and the recapture, and in a jointly-held position a spouse's death confers much of it on the survivor. That is a real, quantifiable reason to hold a fully-valued asset.
5. Land on a partial action when the pre-tax and after-tax answers point different ways, and say which income characteristics justify keeping the rest.
6. Send the reader to a professional for the specifics rather than pretending the newsletter can price their situation.

• The distribution growth rate versus the rate assumed at purchase — here 9% a year delivered against 7% projected, with guidance that it eases. A payout still compounding above inflation is the reason to keep the core after the trim.