At The Prudent Speculator, we believe in “eating our own cooking”—aligning our portfolio strategy with the very advice we give to readers. In a recent article, I explored three undervalued stocks recommended to readers of The Prudent Speculator that I added to my personal portfolio, demonstrating my putting my money where my mouth is conviction.
Money Where My Mouth Is: 3 Undervalued Stocks For Buckingham Portfolio (forbes.com)
This time, I want to expand on the strategy of not just buying undervalued stocks but knowing when to hold or even trim positions when necessary.
While our philosophy encourages long-term investing, part of prudent portfolio management involves recognizing when a position has become overweight or when market conditions warrant a reassessment. We aren’t simply passive holders; we continuously evaluate the risk-reward ratio of every stock in our portfolio, ensuring it aligns with our overarching investment goals.
Even as I am fond of the Mae West quip that “Too much of a good thing can be wonderful,” a ballooning stock position can introduce unnecessary risk. This is why trimming positions—particularly in stocks that have outperformed and attracted more-growth-oriented investors—remains an essential part of our risk management process. Balancing conviction with discipline is key to successful long-term investing in stocks.
Oracle: Trimming Risk into Strength
Oracle (ORCL) is an excellent example of how I navigate the delicate balance between holding a high-performing stock and managing risk. Following Oracle’s 2024 Financial Analyst Day, the company continues to make significant strides, with leadership expressing confidence in exceeding the fiscal 2026 revenue target of $66 billion and suggesting that more than $100 billion in revenue is in the cards in fiscal 2029. With the cloud business growing at a rapid pace, contributing substantially to both top-line and bottom-line growth, it’s no surprise that shares have rallied over 50% this year.
Oracle’s ability to transition from a product-based model to a cloud-centric one is driving this performance, with gross profit from the cloud outpacing losses from legacy license and support revenue. As EVP Doug Kehring highlighted, Oracle’s impressive 5:1 ratio of cloud profit growth to license decline underscores the company’s lucrative shift to cloud services, positioning the company for strong long-term gains.
However, despite our bullish outlook on Oracle’s long-term prospects, our risk management practices, not to mention our penchant for value-investing, dictate taking a little money off the table. After all, ORCL now trades for more than 25 times projected earnings and for more than 8 times sales. True, those numbers are not excessive, but I think they argue for a little caution.
As I like to say, the hardest part about market timing is getting the timing right. So, we must be prepared for stocks to continue their upward trajectory once we have placed our sell orders, which has been the case since my ORCL trim. Still, we are reminded of similar occurrences following the trims of Broadcom (AVGO), Lam Research (LRCX) and Qualcomm (QCOM), as those stocks continued higher after our paring of our stake but are now trading well below our sale prices.
Even after trimming our Oracle position, I maintain a modestly overweight allocation in both my personal account and for clients, so I would love to see the stock price move higher. My team and I continue to believe the company’s fundamentals remain strong, but caution is warranted in the current environment, where tech stocks have been subject to both quick near-term rallies as well as significant pullbacks. Through careful portfolio adjustments like these, I endeavor to stay aligned with both the long-term growth potential of our investments and the risk thresholds that protect our clients’ wealth.