We think the first thing to look at is portfolio position size. No matter how strong a company, we think its weighting needs to reflect an investors' risk profile. Some are comfortable at 8%, some can't sleep above 5%. Second, we like to consider WHY a stock is where it is. We put ourselves in the buyer's shoes. Buyers of MFC today do not think it is fully valued. They are not buying with the expectation to lose money. There certainly can be a case to be made as business is good and the shares could do fine in a lower interest rate environment. Third, we would ignore where the stock has been. It doesn't know it is up 85% in the past year. What we think is more important is its historical valuation vs current. For MFC, its P/E ratio has ranged from 5X to 18X in the past decade. 12X, where it is now, is on the higher side of the average. So, we would not really consider it a 'sell' but we also would not expect the same type of returns going forward as was enjoyed the past year. SLF is similarly valued. The yield pickup is barely 0.5%, and we would not think a switch is worthwhile if any taxes apply to a MFC sale. SLF has lagged a bit, and we think it is a better company overall (marginally now as MFC has executed well of late). With other winners, we might caution against selling 'just for more income'. Winning stocks tend to keep winning, and capital gains can be a far more powerful wealth driver than income. That being said, we like to sell or trim 'when something has changed'. Be it management, debt, competition, or just more 'screw ups' and missed earnings repeatedly. Valuation is something that changes, but we would consider this less important of a factor than the others.
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