UPDATE; 04-25-18. MASS SELLING BURNED THROUGH OUR MARKET YESTERDAY LIKE DEMONIC FIRE. THAT WAS YESTERDAY AND ALL LOSSES ALSO BELONG TO YESTERDAY. TODAY IS NEW. SELLING INTO WEAKNESS NOW WILL NOT HELP. WAIT. BETTER PRICES ARE COMING–BOUNCE BACK RALLIES ARE COMMON. TRIM OR SELL THEN.
T r a d e wars crush bull markets. The United States now flirts with exactly that threat. Like it or not, big potential trouble swings in the wind. That comes on May 1. Now is the time to prepare your equity portfolio for a very possible trade war with China, because tariffs mean trade war pure and complicated.
Market risk is real and now there is more of it about. Even the longest term investor cannot afford to ignore all forms now bearing on portfolios, like yours.
Markets change and our job is in part to adapt appropriately. Markets are unpredictable and it is our job to plan for such. That means in advance. Exposure is the key. How much and of what kind is yours?
At STOCKjAW we look to examples of planning. A mortgage is an easy example with which most people are familiar. In ’05 one of us took out a mortgage; 30 year fixed at 6.125%. At the time the economy and stock market were both functioning.
Current economic conditions affect home buyers’ decision making. When times are booming people begin to feel “it will always be this way.” At that point they often take our mortgages larger than they would under tougher times. Then markets change, while mortgage payments remain the same.
Beware when your paid by assets under management “investment adviser” suggests that he has 1% of his total assets in his home, the rest in the stork market. Been there heard that. Really.
Financial advice is only as good as the person offering said. Regardless of credentials or job title, the only way to judge an adviser is by judging the advice forwarded. Most people do not have the opportunity to put down a single percentage point as a down payment. That’s because it creates zero incentive to stick with the schedule when times grow tough, which they always do.
Our team member had the ability to go big on the down payment, thus creating an incredibly low payment rate. That path turned out to be decisive, because the subprime mortgage meltdown came next.
What followed was a tragic wide-spread loss of jobs, and savings, and finally homes. That exact outcome hit millions, and came to characterize the entire lending industry and the Wall Street engineered human tragedy neatly called a “crisis.” That is what we call real crime.
Prudent investing incorporates the fact of market change. Building in bad times can and does provide flexibility and thus stability for investors and home buyers. Big financial commitments extend over years, yet highly profitable bull markets do not. Thus such growth should never be assumed by investors, not planned on while making major purchases.
For many big mortgages come at the cost of financial security and flexibility. That’s called “house poor.” Fixed costs have a way of becoming onerous when market conditions become rough. They are also referred to as “fixed” precisely because they are very hard/expensive to change.
It you haven’t heard it yet, our bull market is transforming into what’s by some called a “technical market.” Advancers will become more rare, requiring more technical focus to locate, and track. Maybe but, hasn’t leadership o been thin a lot lately?
Risk abounds and potentially slower growth seems at hand. Tax custs are juicing corporate power, yet rising rates are probably only partially baked-in. Such rates will go up further, and then grab some inflation, and some Syria. Right.
1. Raise Cash. Take profits by schedule, and cut losers. Cut or close losing positions before they reach -7% a common rule.
Thus many investors asking themselves now that touchstone of touchstone questions; how risky are things becoming, at my curret level of exposure? And if the President fires the special prosecutor?
The long loved harbor of utilities and consumer packaged goods are no longer a place to flee. Whether this is news or not, institutional support has dried up for grocery chains like Kroger, and even Clorox.
2. Do not expect dividends to protect you from market declines. None will. All we need to do is compare annual dividend yields to the swing-ranges of the market volatility we’ve seen. Dividends were not designed as downside protection.
In our view, remaining inline with institutional money is always best. Such money stays with, thus in part creating, growth themes, like cloud, social, and driverless technology.
3. Volatility has little to to with long term investing. Rather, it should be expected. Sticking with our viable long term investing trends, and specific leaders, makes sense in all markets. Systemic risk and on occasion geopolitical risk, remain exceptions. Nuclear exchange is a planet risk, and that includes all markets globally.
The FANG stocks(excluding Apple and it’s massive Chinese exposure), less so FB, are long term plays. Amazon and Alphabet are core holdings for us, and will remain so, through May 1, tariff day. Such companies offer a certain sector stability, in their incredibly strong industry positioning. Risks always exist, yet tariffs will not leverage either of these two companies our of their dominate positions.
4. Attempting to hide or shelter from volatility or market risk is often less defensive than simply venting off some shares. Rather than buying puts, just trim. It’s cheaper and totally effective. Option “collars” are fine, for those who fully know how to use them. We like trimming–it’s simpler.
Investors have for many weeks been scouring sectors for shelter. Very little exists. Traditional “defensive” consumer packaged goods stocks wander the desert without support. Much of what we know as tech sits in the exact cross hairs of trade warring that we are seeking to avoid. REITs of all kinds are currently under pressure, with only more of the same coming.
Despite the back alley beating being dished out today, defense contractors look viable even in this atmosphere. Medal prices will remain a question, yet governments rarely stop purchasing weapon. Our president is also commuted to selling American weapons system globally. And he has.
5. Stick to your guns. Follow what you believe to be best for you. Opinions vary and stock pitches never cease. Risk can be reduced by trimming positions, maintaining your long term perspective, and knowing what you own and exactly why you hold it.
Shelter from a trade war storm seems unlikely even in the banks. As rates rise earnings season rolls on. Over the past ten days the banks reported solid numbers–even good numbers, MS. Yet no love exists. Share prices display no respect for this execution.
Banks will eventually be rewarded, but when? And until then? Until then look for your place in the storm company by company. Banks, REITs, packaged goods, utilities, steel, aluminum, semiconductors, and pharma, are unlikely to ease the passage through whatever’s next.