Now Is Your Chance...
/Hi everyone,
If you were freaking out in December when stock prices dove -15% in a matter of 3 weeks.
If you were worried prices would fall even further and you would lose more money.
If you wished you had sold some investments prior to that happening.
Now is your chance.
The S&P 500 index is a sand wedge away from its all-time high of 2,940, which it set back in late-September. Stock prices have rebounded most of the way back to previous levels, which means you have a chance to rewrite history and do things differently if you want.
But you won’t.
Whether due to recency bias or something else, there is usually a contrast between what we say we will do and what we actually do. The fear that plagued so many investors months ago shifts back to greed as prices rally back. No matter how much you convinced yourself you would not get caught flat-footed the next time around, when that next time comes around the result is more inertia.
The thing is, that is probably the right call.
Suppose you do sell, the feeling of satisfaction you get is short-lived. The pride you feel in knowing you executed what you said you would do is soon overshadowed by the next decision you have to make…
Now what?
If you are right and stock prices do plunge again, you may think you are smarter than the average investor but what is your next move? When do you buy back in?
If you are wrong and stock prices zoom higher to new record highs, will you maintain your conviction that those gains will be fleeting? Or, will you be compelled to buy back in at those higher prices?
My point here is to expose the likelihood that while you think you are making informed decisions you are really just winging it. There is no process that informs your decisions to buy and sell. The decision-making is 90% emotional, 10% intellectual.
If you do have a process, there is easily an argument to be made in favor of selling at these price levels. Or at least reducing some of your stock exposure. But if you don’t have a process then doing nothing is likely your best choice. The stock market has 100 years of history to show that it moves higher in the long run. That is a tough trend to fight. You can certainly maneuver around it, but it requires a disciplined process.
Nonetheless, if you are hellbent on not getting caught with your pants down again, now is your chance.
In The Market...
The S&P 500 +2.2% last week. Let's look under the hood:
(price data via stockcharts.com)
I obviously mentioned it above, but the S&P 500 is back within a percentage point or so from its previous all-time high. Last week was a quintessential “risk on” week, where investors preferred the more aggressive pockets of the market like Materials, Consumer Discretionary and Technology. Conversely, Treasury rates climbed higher as investors sold those relatively safer bond investments.
While market conditions continue to look good, we are no doubt on alert that a potential wave of selling could ensue now that stock prices are back to their previous highs. Many of the momentum indicators we care about have improved nicely and they must continue to do so in order for stock prices to really break out higher to fresh highs.
Portfolio-wise, we sold a S&P 500 index fund and replaced it with a Semiconductor sector fund (XSD). The aim here is that Semiconductor stocks have simply shown stronger price momentum relative to other areas, which validated the decision to buy.
In Our Portfolios...
What's New With Us?
Check out our latest video, which explains the tax benefits of doing a 1031 Exchange. If you own a rental property, you should definitely check this out.
Have a great week!
Brian E Betz, CFP®
Principal