The Signals and Noise
Ending March 27, 2026
Blog
We have fielded a few questions lately on Woodside regarding when and how much to rebalance after its swift rise from around $20 to the current price around $34.You can think about this with our other winners (rare earths and coal stocks).
Two parts of the profit - the capital gain and the dividend. When you sell you "lose" future dividends but receive more money in the here and now. When you buy more you gain future dividends.
Question - Do I have an invesment that can deliver more than I am currently receiving?
If you bought Woodside around $22, the current dividend of around $1.80 dividend is roughly 8%. That's a very good return if you consider that a capital gain of around 4-5% in future years means a solid 12-13% compound return. If the stock is bought very cheaply and remains undervalued, then you may postpone rebalancing because it remains cheap and you believe the future is still positive, and you are comfortable with a 12-13% compound return, and finally there are no investment opportunities where you can get a better return.
You may also consider whether you need the money. A retiree may well take the rebalance not because he/she thinks it is overvalued, but because they need the income as a contribution to fund their current lifestyle.
Question - Do I need the money now?
Dividend Reinvestment Plan - can be a good move as you may want to build a larger position in the stock or ETF, but the question is - what is the valuation? If it remains undervalued then a DRP is sensible. If it is overvalued then you may wish to take the dividend (don't buy a stock just because you hold it. Remember, overvaluation kills returns.
Valuation- is it still cheap? check the current P/E and usual ratios and if they are still reasonable, then you may want to postpone selling some. If it has become overvalued then it may be a good idea to sell some.
Tax issues - short term gains are taxed at a higher rate and so will cut the actual profits. Try to wait at least 12 months before rebalancing as this reduces the tax take. Many stocks will have a sustained period where the price rises so in most circumstances waiting 12 months before selling a portion is a good move.
A positive future? Oil and energy more broadly appear to have a promising decade ahead. But even if they didn't and merely kept up with inflation you would still be receiving a good return because you bought cheaply.
Rebalancing is always annoying because when it comes to selling a portion, you always feel like you should hold off because your winner will keep winning. Buying when the price has fallen can also be difficult because it feels like it will fall further. Because the stock price changes daily, you get a chance to regret each time you rebalance and on future occasions lament the buying or selling because the price of your stock rose more or fell more.
So in terms of rebalancing and the questions above, the answer is there is no exact or perfect amount. Always consider your position and remember no-one has perfect timing. Just focus on not losing money and building your capital over the long term.
