How "Side Dishes" Are Fattening My Main Portfolio

As someone investing for the long term, one of the most common questions is, "Do you ever sell?" The answer is yes, but my decision to sell depends entirely on the role that a particular stock plays in my portfolio.

There are the main dishes, which form the core of my portfolio and provide most of my dividend payouts. Then, there are the small side dishes, which are there as smaller satellite position for diversification and possibly enhanced returns.

Each has a different purpose and, therefore, a different set of rules. Today, I want to share how this system works for me in practice.

The Two Ways to Generate Cash Flow

My portfolio's primary goal is to generate cash flow. In most systems, this would come from two distinct sources:

  1. The Harvest (Dividends): This is the recurring income from my core holdings. It's the predictable, sustainable cash flow from my core of blue-chip banks and REITs that form the bedrock of my portfolio.
  2. The Trade (Realized Gains): This is a one-time injection of cash from selling a "side dish" after it has served its purpose. I set aside a small amount of capital for trades that could enhance my main portfolio.

My Core Holdings

My portfolio's core makes up 90%++ of my portfolio. It's my fortress of blue-chip S-Banks and SREITs that I intend to hold for the long term. The goal for these positions is simple: to collect and reinvest their growing dividends, year after year. My rule is to never sell these positions and buy more especially if their prices dropped. 

The target return of my portfolio is 7% annually, which I could break down further into 5% dividends and 2% capital gains. 

My Small Dishes 

The remaining part of my portfolio is made up of satellite positions. Here, I place good companies that I believe are currently undervalued, but I may not have strong conviction in their long-term value. 

I would open position in a side dish when I have capital available but do not see any main dish that is "cheap" to buy. The side dish must be reasonably priced, at a valuation that I am comfortable with. 

A Tale of Two Side Dishes: CDG and Venture

Two of these satellite positions were ComfortDelGro (CDG), which I bought at $1.43, and Venture Corporation, which I bought at $11.00. They are companies with good financial health, convincing me that they would not go under in the next few years. 

Both stocks had a strong run-up after I bought them, climbing more than 10% in just a few weeks. Since they had already blown past my 7% target return for the entire year, it was a time where I could comfortably take profits.

Final Move: Fattening the Core

Selling these side dishes has realized profit and freed up capital in my portfolio. I have decided to deploy this capital by purchasing shares in UOB and OCBC. A good rule for taking profit is that you should have an idea of where the capital would be better deployed. 

That realized profit is now a permanent feature in my core portfolio. It will pay me reliable, recurring dividends, quarter after quarter, for years to come.

Conclusion

Disciplined, tactical gains from my "small dishes" can be used to accelerate the growth and income-producing power of my "main dishes". It’s a simple strategy that brings balance and purpose to the decisions I make. Keeping a clear separation between core and satellite positions, further helps me stay vested for the long term. 

How do you structure your own portfolio? I'd love to hear about everyone's different approaches.

Disclaimer: This blog post is for entertainment purposes only and does not constitute financial advice. Please do your own due diligence.

 

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