I’m pretty happy with the companies in my portfolio right now; most are hitting their stride, and the strong business performance is reflected in rising stock prices.

Over the long run, stock prices will always track business fundamentals—this is as true as the law of gravity. And there are predominantly two forces driving stock prices: earnings per share (or free cash flow per share, if you prefer that metric) and multiples.

Multiples are a bit trickier—they’re shaped by fundamentals but also by current investor sentiment. As I outlined in yesterday’s article, Why I’m Taking Profits in the Stock Market Now, we’re leaning towards the exuberant side.

Again, I want to be clear—just because the market is exuberant doesn’t mean it’s about to crash. This isn’t a market crash prediction.

There are three ways this could play out in the short run:

1. Stock prices continue climbing, and the companies I sold exceed expectations, making valuations appear reasonable—and making me look pretty stupid.

2. The stock market moves sideways while business fundamentals catch up and continue to do well in the long run.

3. The stock market experiences a correction, but as business fundamentals improve, it continues to do well in the long run.

In the long run, all this is just noise, and investors would be better off holding onto their stocks and compounding through it all.

But the long run is a series of short runs, and we have to structure our personal finances well to enjoy the long-run benefits of the stock market’s compounding power. Or, as the saying goes, “To finish first, you first must finish.”

I’m anticipating significant expenses in four to five years. To prepare for these expenses, I’ll sell a portion of my portfolio and lock up a portion of my gains in short-term liquid assets.

My Selling Framework

As detailed in yesterday’s article, I’m using three main criteria to evaluate which stocks to trim, sell, or hold:

1) Its current position sizing

2) The future of the company’s growth runway and economic moat

3) Its current valuation

What I won’t consider is the price I paid for each stock or how much it’s gained or lost—an approach grounded in avoiding the sunk cost fallacy.

In this report, I break down my decisions into three categories—Trimmed, Sold, and Unchanged—and explain the rationale for each.

This exclusive report covers the following stocks: Meta, Netflix, Microsoft, Adobe, Tesla, MercadoLibre, Sea Limited, Alphabet, LVMH, Adyen, Wise, Tencent, Trip.com, Booking Holdings, Brookfield, Paycom, PayPal, and Lululemon.

If you’d like full access to this report and my complete stock research as a Steady Compounding Insider, become a member today: https://steadycompounding.com/membership/​

I'll see you inside,

Thomas

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