The NYT article speaks to current corporate earnings being flat to moderate in the first and second quaters of this year and an outlook for some earnings growth in the third and fourth quarters. It also speaks that we have had a years worth of market returns already in the first quarter of about 13%. So, where does that leave us?
My thoughts are that we will have a pull back in the markets, which has already begun, and with this stock prices will be lower going into and through the summer and will turn upward as we move into the fall and winter months. So with this, don't rule out ... "Sell in May and Come Back on St. Legger's Day." Historically stocks are soft during the summer months and with the headwinds noted in the Forbes' article, linked below, maybe even more so this year.
http://www.nytimes.com/2012/04/15/your-money/corporate-profits-have-stalled-has-the-market.html?_r=1&ref=business&pagewanted=printA recent Forbes article on the "Sell in May" strategy is linked below for your reading enjoyment. It raises the question ... Is Sell in April Here?
http://www.forbes.com/sites/robertlenzner/2012/04/03/sell-in-may-and-go-away/For informational purposes, I reduced equities within my own portfolio during the first quarter from about 63% to 64% range downward to about 55%; and, this past week I reduced again from the 55% range to the 50% range and raised cash by a like amount. My current asset allocation is aprox. 25% cash, 25% income and 50% equity & other. This puts me at a neutral weighting for equities as measured by my tolerance for risk score which is 40% on the low end and 60% on the high end.
In addition, you might find interest in reading a recent article posted by Ted titled "Stocks Now Top Bonds in the Hunt for Yield." I have linked it again for your easy reference.
http://www.marketwatch.com/Story/story/print?guid=227C7064-8321-11E1-972F-002128049AD6Have a good weekend ... and, Good Investing.
Skeeter
Comments
Next question, what are your plans for capital preservation? Several days ago there were discussion on alternate funds including long/short, arbitrage strategy and etc. Have you consider them? Just curious since you have a considerable cash position.
Sven
Thank you for the question(s), which from my understanding is … What did I do on the way up? I hope the below explains this.
Last summer when equities had pulled back I was a buyer of equities and moved money from form the cash ballast side of my portfolio into some special equity ballast positions. Through purchase and capital appreciation these special equity ballast positions combined with my normal core equity holdings grew to a total equity range of 63% to 64% of the portfolio. With this, I began to sell some of them off and book profit. Thus far, from this year alone, my profit in the sell of equity ballast positions is better than ten percent plus their appreciation from the time of purchase last summer puts my overall gain for them in a range from fifteen to twenty percent and a few even hgiher. Not bad gains, form my thoughts, in making excess cash productive ... and, it is much better than the 5% that I was earning in my CD ladder.
This summer, should equities pull back as I expect, I’ll be a buyer of equity ballast again, S&P 500 Index or something similar, if its P/E Ratio approaches 12. With 2012 forward estimated earnings of the S&P 500 Index to be around the $105.00 range this would put the S&P 500 Index at around 1260, by my math, and about where it started the year. Currently, I have the Index pegged at about a forward P/E Ratio of 13 with its current value around 1370. Heck if the market does not pull back … I have already made good money with the sell down of my special positions.
Also, within my equity holdings I am heavily invested in what I consider the big three defensive sectors, utilities, healthcare and consumer staples plus two other sectors which are technology and telecom. Combine these sectors account for better than 50% of my equities. Since four of these sectors are also good dividend generators they should better meet a pull back than the other equity positions and sectors I own. When you combine cash of 25% with the income area at 25% and half of my equities in what I consider good defensive equity positions then I feel I am well positioned to meet a downdraft of equity headwinds moderately well. I am not a holder of any special arbitrage strategy funds although I do hold some funds that can and do employee some short strategies from time-to-time based upon market conditions. From review of a recent Instant Xray report, of my portfolio, reflects that I am currently overall 105% long and 5% short. Note this will vary form time-to-time as some of the funds I own execute their short and long strategies.
A main theme that I do utilize is to build and to maintain a higher level of cash during the equity off season which usually starts around May and goes through October. Historically, the best six months for equities for me has been November through April which I refer to the equity season. It is during this period that I buy and ramp up my allocation to equities, hold them through the season or until I become substantially become overweight in them and then sell some of this equity ballast off, as I did during the first quarter of this year, thus reducing my equity exposure.
I hope my answer provides you with a better understanding of how I govern my portfolio and position it. As I have said before, what I do might not be right for you.
I wish you … “Good Investing.”
Skeeter
Regards,
Ted
Your methodology appears to provide your portfolio mix with excellent returns, far and above this house's returns.
Thank you for continuing to share your thoughts.
Question. Why do you not sell down a larger percentage of the equity portion of the portfolio during the periods with which you find the larger equity sectors pullbacks to retain even more profits to plow back into the next equity uptrend?
Take care,
Catch
thanks, Derf
First for Catch 22’s question … Why did you not sell equities farther down? Mark, I guess I could sell my equities farther down but in doing this I would be generating more taxable income from the resulting capital gains than I need or want. In addition, I would be selling some assets that have appreciated over the years as I have some equity positions that date back to the mid 70’s.
The “Sell in May” strategy has worked more times than not for my family through the years … but, there have been years that the strategy would have provided losses if positions were sold off on the timing schedule. This is one reason that I now use T/A to assist me with entry and exit of the strategy in addition to the calendar. The pure calendar is not as reliable as it used to be from my thoughts. Special positions usually do not get sold off on the schedule if a loss is at hand as they usually are held until such time they will generate a profit from their sale. This is a reason why I usually invest in good dividend equities when using this strategy. If things should move against you, you receive the dividends from the position and this, form my thoughts, gives it some staying power where you can ride out a down draft as you don’t just have a pure capital appreciation only investment. I sold more off this time around than I usually do as I had let my portfolio get too equity heavy as determined for my tolerance for risk. Indeed a sell down of 14% put a lot of cash on the left side of the portfolio. My normal dollar allocation to this strategy is a sum equal to about five percent of the portfolio.
Moving on, with the question on the CD ladder from Derf … The CD ladder used to be comprised of 20 CD positions, one maturing each quarter. So as interest rates pulled back I stopped rolling the CDs and started putting the money to work in some other areas … one being good dividend paying stocks and mutual funds of same. This is part of the reason I got equity heavy. There are only a few positions left in the ladder and these are all paying in the five percent range. You could not, that I know of, go to the market and buy new issues at this yield today. I plan to keep them until they mature.
I admit, I am more active in my portfolio than I have been in the past. However, with the fed cutting interest rates to near zero has left me to utilize CD money in other areas than it was targeted as I had CDs mature. This has in itself got my portfolio somewhat out of skilter. I am now moving it back more towards its old normal allocation. Before the recession ... I was about 15% cash, 30% income and 55% equity. In cash, I was about 5% demand and 10% time deposits (CDs). So now, I guess it is fair to say, I am now light 5% income because of a rising interest rate concern and light 5% equity because of a market concern. Indeed, I have been active ... and, it looks as though I will continue to have to remain active. Staying heavy in cash will afford me availability to pursue special opportunities as they arise.
I hope this answers your questions. If not, I don’t know what else to say ... other than I wish you all good investing.
Best regards,
Skeeter
You noted: " First for Catch 22’s question … Why do not sell equities farther down? Mark I guess I could sell my equities farther down but in doing this I would be generating more taxable income from the resulting capital gains than I need or want. In addition, I would be selling some assets that have appreciated over the years as I have some equity positions that date back to the mid 70’s.
Skeeter, I have got to get into my head the taxable viewpoint that is more often than not part of most posts here. I'll be better in the future regarding the taxable side of money moves.
All of our portfolio is tax sheltered and aside from exchange restrictions (about 20/year); we don't give a thought to tax considerations.
Thank you,
Catch/Mark II
Some don't pay much attention to taxation ... but, I do. For me to sell equities down fauther would require me to sell positions in my taxable account as I curently hold no just equity funds in my 401k and only a small amount of just equity funds in my IRA. This leaves the bulk of my equities in my taxable account and with the dividend yield that I am catching from them I am choosing to continue to hold them. I just do not need to book a lot of capital gain income uncessairly and also loose my dividend income stream. So if my dividend paying equities pull back in their valuation I will still be catching their dividends. And as Desota pointed out and most don't turn their long standing equity income holdings. At least I don't. However, I will turn special equity positions that I enter.
I gave you an answer ... Sorry it was not the one you were looking for ... But, it was my sincere answer. Look, I enjoy the dividend income from many of these long standing holdings as most of these companies have grown their dividends as they have grown earnings. Why should I sell off a good equity income producing cash cow? Most of them would have to pull back a long way before I would get upside down in them. For example my average cost in DUK Energy is back of $5.00 per share and I am catching a $1.00 dividend per share. What a deal! ... Don't you think?
Take care,
Skeeter
Once again, thank you for sharing your thoughts. Best investing..
Sven