As I sit at my desk this morning, I began to ponder "Where to now?"
In review, my notes on earnings reflect that at the beginning of the year reported earnings were projected to come in around $112.44 for the S&P 500 Index for July 2016 reporting. They were reported at $89.16. Folks, this is a decline of about 23%. Now, what I am reading and hearing is how earnings are now beating analyist estimates. I wonder how can this be? But ... wait ... analysist can change their estimates just hours before a company reports ... and, with this, the markets goes wild because of the beat rates. Seems, from review of my notes, year-over-year reported earnings are down from $93.57 for July 2015's reporting to 89.16 for July 2016's reporting. This is a decline in earnings, year-over-year, by about 4.7% ... and, the crowd goes wild and just keeps on buying with the markets reaching new highs.
For me, it is time to ... again ... rebalance my portfolio.
How about you ... What are you pondering?
Comments
I have been rebalancing lately into cash.
As you know, Markets can remain irrational longer than most of us can remain solvent.
That's the biggest danger I see in trying to base buying/selling solely on rational metrics as I suspect you are attempting. Not to say valuations don't matter. In the long run they very much matter.
I think for most novice investors (myself one of them) a well diversified long term plan works best. I do sometimes "tweak" allocations a bit based on some pie-in-the-sky view I may hold. But it's a very personal process, including thoughts about valuation, inflationary pressures, yields, relationships among asset classes, past trends and cycles, age, tax repurcussions and the likelihood I'll need the money any time soon. Couldn't explain it succinctly to anyone and wouldn't attempt to if I could. I don't think I'm unique in adhering to such a process.
This has been my best year in awhile. Some small opportunistic bets early in the year paid off nicely: gold, Latin America, energy, real estate. The first two I'm out of completely. The latter two I still hold, but in smaller quantity. Short-term gains locked-in earlier this year continue to compound because that $$ was moved to less risky, but still appreciating assets. (A different view of compounding than typically considered.) Haven't done much in several months. Tucked a bit more away in cash which now sits slightly above a neutral 10%. Call me neutral but cautious at this point.
I agree that macroeconomics and politics at home and abroad are unusually important at the current juncture. Personally, I try to shut those thoughts out of my investing decisions completely for two reasons: (1) Nobody really knows what's going to happen and (2) There are people out there much smarter than you and me who have probably figured out the likely outcomes and bid-up the market sectors most likely to benefit.
Regards
Thanks for reading my post and making comment.
In response ... I'm thinking it is not investor sentiment that the small retail investors knows (like myself) ... It's big money pushing the markets.
Hi @Sven,
In response ... I think we are seeing much the same market landscape. Thanks for making comment.
Hi @hank,
Hi hank, I thank you for making comment. Congrats on your special investment positions. Special positions are a big driver in my portfolio performance as well. I agree with you that the markets are very complex and can be driven, at times, more so by big money over the small retail investor like myself. This is what has me concerned. I don't think it is the small retail investor driving the markets ... I believe it to be big money. Just wait ... when big money starts to call its money home the retail investor for the most part will be left in the wake wondering ... What in the heck happened? In my lifetime, I have seen this happen over and over. Big money will run the markets skyward ... a selling stampede will take place ... and, the little guy is left holding the punch bowl with no punch left to party with.
I'm rebalancing.