Clearly, owning losers is no way to beat your benchmark. However, not owning the index winners is equally important, which causes many equity fund managers to"hug" their benchmark for dear life. I have written previously about how five stocks —To track the weight of those five names would occupy a sizeable 21% of a portfolio today. While that is higher than their 18% heft at the beginning of 2021, very few active managers would have overweighted them collectively.
From first-hand experience, most of us who bought a stock at $100 think it's much more attractive at $80 or lower and deploy available cash to add to the most attractive names. This assumes that we know the company well. However, few professional investors coming off a difficult year leave their entire portfolio unchanged. There may be a couple of obvious cases where industry or stock-specific fundamentals no longer justify inclusion in the portfolio, where they occupy too much of what we call"valuable real estate."