Looks like the market picked the wrong year to stop sniffing glue.Barry offers some ominous things he was able to dig up. Gulp.
If you do a lot of reading and watching you will likely find plenty of very pessimistic commentary. I would say to no be so caught up in the pessimism that you deviate from whatever strategy you believe in for defensive action--if you even believe in any.
For anyone new this is not a Pollyanna-ish post, I have thought a top was in for the cycle for a little while now, the point is that now just because things are looking a little worse you should not start to panic. You should stick to whatever you hopefully devised when all was well with the market.
Bear market or just a short lived dip this has happened before and will happen again. There is no reason to get emotional about something you know is a normal part of the stock market's cycle.
I put out a quick note to clients the other day noting that the goal of what he have done thus far WRT any defensive action taken or anything we might do in the future, is to be down less not zero, if I am correct that a bear has started. And to be clear this could still just turn out to be a dip that bottomed on Tuesday. I don't think that is the case but I could be wrong. No one wants to be 75% cash when the market has a surprise 20% rally.
To that end I made a small sale on Tuesday for most clients. In the video I disclosed buying Monsanto in October and having been stupid lucky with it. I sold about a quarter of the position, subject to rounding, at about $122.30 in the middle of the day. I think the stock and theme are both great but the stock has been so hot and there have lately been so many people touting it that shaving it down a little just made sense.
The notion of being lucky came up quite constructively in the Dick Davis Dividend book I mentioned in the video from a few weeks ago. It is a concept to never lose site of.
16 comments:
I have been staying with a portfolio with 50% market volatility for many years. During this week's selloff, my loss is less than 2% vs 5.3% for the S&P 500 and 3% for a 60%/40% equity balanced index. Over the past 5 years, my cumulative return is 70% vs 48% for the S&P 500. I attribute my out-performance to smaller losses during down years.
that is a fantastic result.
"I have been staying with a portfolio with 50% market volatility for many years."
I don't think I know exactly what that means, or I'm a bit slow. Can someone dumb it down?
Thanks.
i take it to mean his average beta is 0.50 or that he uses some other volatility measure to gage.
I believe the longer term standard dev of the market is 14 so his would be 7 as an example.
Well, I should've been more specific. I understand his volatility is 50%, but what I mean here is how is that constructed? Just because a stock is 1/2 a volatile as the S&P is that a sign that it will rise? IOW, is the only trick here to pick steady eddies regardless of past performance and future prospects for the company?
maybe he will come back and answer you but I think of it as blending together a mix of all sorts of companies such that the overall mix has a low vol. I'm not sure why you infer no forward looking analysis but maybe he does exactly what you say?
I infer that because the vol is the only criteria listed. But I guess this is what I was looking for clarification on because it's never THAT easy :)
Yes, hopefully he comes back and shares some details. Admittedly, I've been studying the exact opposite idea which is why my interest is piqued.
I have been using www.riskgrades.com(still a free site at this point)to estimate my individual position and portfolio risk. What it uses is something called "riskgrade" which is related to the volatility. The analysis of a portfolio is like one the below:
1.This portfolio RiskGrade of 49 suggests Balanced Plan Investment Strategy.
2. Diversification benefits have lowered this portfolio's risk by 18%.
3. This portfolio is 0.5 times as volatile as the S&P -S&P 500 Index.
One more feature I like is Return Analysis(RA), which gives a X-Y plot of the return vs Riskgrade for individual stocks or funds. Admittedly, it is still a backward looking model but a pretty good one.
You can also check www.bigcharts.com for volatility as well and come up with your own risk measurement.
7:29Anon
So is this the only criteria you use to construct your portfolio?
If you believe we are in a bear market - what are you doing with new cash you have to invest? Are you buying anything you like long? Do you keep it in cash?
Don Coxe still likes Monsanto, agriculture and commodities in general. He predicts stagflation in '08.
http://tinyurl.com/2htvq3
generally accounts that i have needed to implement I have been, in fact implementing but doing it slowly.
The same applies to new accounts. If the market rockets higher while someone has 100% cash or whatever, that is worse, IMO, than wading in halfway as the market goes down.
JackS, obviously I like the name, I actually have more dollars still in after the sale yesterday than I originally committed but the move has been huge.
Interesting factoid posted over at Bespoke. The S&P is already trading 11.58% below its 2007 high, making it over halfway to bear territory. My portfolio adjustments must have helped ease the pain or I'm the frog being boiled on the stove.
Typical long term standard deviation of the .spx is close to 15pts, by memory and I think Roger makes this reference too. We came close to that roughly measuring from the peak in October to recent low. And today we came closer...about 1percent shy.. to hitting long term lower trend line. Rallies happen in bear mkts but there could be a second deviation. Roger...am I using the figures accurately to measure SD? Could we already be there? The time element that Roger has in his post suggests "no." The median bear %wise since 1954..is 16plus percent...but the range in bear mkts is quite a spread. I'll see if I can find that link..
yep...over at bc:
Northern Trust Global commentary:
Movements of the S&P just prior to and during a recession.
http://tinyurl.com/2fptvt
“If history is a guide, brace yourselves for a rough ride in the months ahead.”
jasper
Oops, the market is down. I have been adding to my rental real estate portfolio for months.The property market is saturated with clients who can no longer meet mortgage stips. Things are so good in the rental arena that I may have to see a massotherapist to treat a very tired right hand in pain from endorsing all those rental checks.
jasper,
i tend not use those numbers in the manner i think you are--as a predictive tool.
i am more interested in volatility to help me decide how much volatility I want. sometimes i want more and sometimes i want less. I am also interested in changes in vol too as means of trying to glean a "message from the market."
I can't recall ever trying to assess whether a second deviation is coming. I can't say anything negative about the idea, i just don't do that.
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