Why I liquidated my portfolio

At the start of 2020, my equity portfolio consisted of 70% ETFs (in my TFSA) and 30% individual stocks. Some stocks I bought because I know them, some on tips, and some because I like the company’s story. About half of the stocks I bought using the value methodology.

Then 2020 happened. I looked at the difference between my individual share portfolio and my ETF portfolio in how they reacted to the market crash in March. I particularly looked at how they each took the blow as a collective. When the market started to recover I looked at how they recovered.

To no surprise, my ETF portfolio handled the situation much better, and my individual portfolio performed better than I expected considering the circumstances.

In August I got an opportunity to trade JSE equities with Simon. Trading shares is something I’ve done before – I had been an index trader before. I’m a few months in, and I can confidently say I’m doing quite well.

I started asking myself one question: If I were to deploy new capital in either my equity portfolio or my trading “hedge fund” portfolio, where would I be most confident in? The answer to this was quite simply the trading portfolio. The obvious question of escalated risk does come up because trading CFDs (contract for differences) is far riskier than investing in shares.

So I tackled the question as follows: Whether consciously or unconsciously, my picking individual stocks means I believe that I can pick stocks that can do better than the index. This led to my next question: Which of the two am I more confident in? My competence or my conviction? I decided that I’m a better trader than a stock-picking investor. I’m essentially betting on the jockey (me) not the horses (the portfolio themselves). The decision had more to do with me than my portfolio.

So I decided to liquidate all my shares except for The Purple group (because I really like the company and I couldn’t bring myself to selling). And I moved the proceeds of the sales into my TFSA account.

Moving forward I will use the capital earmarked for buying individual stocks to fund my trading account, my TFSA contributions will remain the same, with the normal annual increase. At some stage, I will move profits from my trading portfolio to fund my TFSA. When my TFSA is maxed out, I will buy the same ETFs in the normal account on EasyEquities.

As the old saying goes, “When we don’t know any better, we do our best. When we know better, we do better”. What I described above is a better decision for my portfolio. Fortunately for me, I came out of the process unscathed. I didn’t lose money, except for the transaction fees. The portfolio was up 0.03% when I liquidated it.

Cash Club blog

Njabulo Nsibande is a Just One Lap user-turned-contributor and a founding member of an investment club. His “Cash Club” blog details his experiences balancing the financial obligations of a young parent with his investment aspirations.