I am fortunate enough to have a few winning shares in my ASX share portfolio. It has certainly made the many years I have been investing in ASX shares worthwhile.
But I am certainly not an infallible investor, and have found my fair share of absolute stinkers within my portfolio over the years as well.
Whilst I have sold most of my bad investments for a subsequent loss, there are still a couple of giant weeds that remain in my ASX share portfolio, spoiling what I otherwise consider to be a good-looking garden.
As we've already established, you always have to option to 'pull' your seeds out of the garden by selling them. Whether you should do so or not is the question.
So today, let's talk about two weeds in my ASX share portfolio 'garden' and whether or not I'm going to sell them.
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Weeding an ASX share portfolio
First up is A2 Milk Company Ltd (ASX: A2M). I bought A2 Milk shares back in 2021 when the company was hit hard by projections that its past growth rates wouldn't continue. At the time, I thought that the market's reaction to this bad news was overdone. I was wrong.
Those shares are still in my ASX share portfolio today, nursing a significant loss on my initial investment.
I've come close to selling out of this position before. But I do think this company can turn things around, if slowly. A2's February half-year earnings report showed the company had increased its revenues over the period by a decent 3.7%, leading to an even more impressive 15.6% spike in net profits.
If this report had shown falls in revenues or profits, it probably would have been enough to have me sell out. But I'm confident things can keep improving from here, and as such, I'm not pulling out the A2 Milk weed out of my ASX share portfolio just yet. Hopefully, it can evolve into a flower over time.
Adairs: Weed or sapling
Secondly, we have ASX 200 homewares retailer Adairs Ltd (ASX: ADH). Adairs was another 2021 purchase (it probably wasn't my best year). At the time, I believed this was a high-quality company, which is a view I still hold. My problem was that I paid a share price that was too high.
Over subsequent years, Adairs suffered from the post-COVID 'return to normal' that many other companies have also been through.
However, I have been watching this investment closely and have been encouraged by what I've seen over the past 12 months.
February's half-year earnings showed Adairs continuing to navigate difficulties. Revenues and profits fell compared to the previous year. But I was encouraged to see gross margins and cash flows grow, while the company's debt fell. The resumption of dividend payments was also an encouraging sign.
I'll continue to hold my Adairs shares for now, as I think there's a good chance the company will continue to recover. Hopefully, this weed will also grow into a flower over time.
Foolish takeaway
Pulling the weeds out of your ASX share portfolio is never a fun task. For one, you are crystalising a loss and abandoning hope that an investment can turn things around. There are also psychological factors at play – selling an investment is tantamount to confirming that you've made a mistake. Additionally, if your weed can pull off a recovery after you've sold out, you'll feel even worse.
But it's my view that one of the best habits you can learn in the investing world is to act decisively on a weed if you're investing thesis is broken. After all, a 30% loss is much better than an 80% one down the track. That's why A2 Milk and Adairs remain in my ASX share portfolio, while WAM Global Ltd (ASX: WGB) and Zoom Video Communications, for example, got the boot long ago.
