About an exit plan

DavidV

This is the post of savannahboy from InvestorVillage ( I follow his predictions for a long time and found them rather accurate):

One of the benefits to posting is that it forces you to think about what you're
going to say. In my case, my "Break Out (3) post forced me to think more about
an exit plan if I need one in 2018. Based upon my psychological make-up, my
exit plan needs to be relatively simple with some clear-cut "If-then" triggers
for expanding or contracting stock market exposure. I usually react much better
to volatility, if I've already planned for it.

After some rumination this weekend and listening to a helpful interview with
Ed Hyman, one of the great economists and market strategists, I've decided that
the market is in the midst of a melt-up that necessitates having an exit plan.
http://wealthtrack.com/1-economist-hyman-leading-value-manager-mclennan-discuss-economic-surges-super-bull-markets/

If so, then for 2018, I'm going with the following triggers in my exit plan:

1. If the yield curve inverts, the yield on a 10yr Treasury exceeds 3.0%, or
my portfolio reaches a certain amount (reflecting about a 12% increase in
the S&P 500 Index from 12/31/17), then I'll sell 20 of the 30 stocks in my
portfolio, which will leave the portfolio roughly 70% in cash, 26% in mostly
defensive, dividend-paying stocks and 4% in two spec stocks that I'm expecting
to do well in 2018 regardless of the market. I'll redeploy the cash after the
next bear market when the health care stocks start to recover (since I've found
that a rally in this sector often marks the low in bear markets).

2. If none of the conditions in no. 1 above have occurred by 6/30, I'll sell
the 9 stocks in my millennial group throughout July, leaving the portfolio roughly
30% in cash, 33% in chips, 33% in defensive stocks and 4% in spec stocks.
I'll redeploy the cash back into the millennial group with possibly a few
changes in stock selection if the Republicans retain control of Congress
after the mid-term elections (after which I'll be 100% invested) or go to 70%
in cash if the Democrats win. Of course, if one of the conditions in no. 1
above occurs at any time in 2018 or 2019, then I'll sell the stocks in the
millennial and chip groups, moving to 70% in cash as per no. 1 above.

Each investor should have his or her own exit plan based on his or her risk
tolerance, age, investment horizon, unrealized profits in the portfolio, etc.
I'm sharing my plan with the board for whatever value that might have to other board
members. Remember, nobody rings the bell at the top, although there are
certain tells that often signal a recession (and bear market) is coming.
GLTA! Savannah

https://www.investorvillage.com/smbd.asp?mb=10677&mn=20928&pt=msg&mid=17857086

Old_Skeet

In my lifetime I been through a number of these selling stampedes in the ... 70's ... 80's ... 90's ... 00's ... 10's with some leading into a recession. With this, here is what I have observed. Stock market swings are part of investing. If the 500 Index would decline 10% form current valuation of 2743 that would bubble somewhere around 2470 (reasonable). Beyond a 10% decline look for a good number of margin calls to kick in so expect a 15% to 20% decline (coming pretty quickly) and that would bubble somewhere around 2330 to 2200 (concerning). Also, expect days to cover to keep rising as big money shorts. Beyond that more margin calls kick in as the selling stampede continues as some investors fail to meat their margin calls and their positions get sold out. By then big money starts to close out short positions (days to cover declines) and they should now start to buy back in as the little retail guy and weak sells out in the downdraft with stocks becoming oversold. After big money has established their buy back in positions now the little retail investor follows usually buying at a higher value than when they sold. So, just sitting for some is a strategy in of itself ... but, this takes a strong constitution to do this and not play big money's game through their shorting and sell down programs. This most often causes the weak and little mom and pop retail investor to sell out as they can stand no more paper losses. Hear the noise but watch what the big money investors do. Towards the end of the crash they then start to buy. And, if you have not sold out you will begin to see the value of your portfolio begin to rise and you can also begin to do some buying yourself as you deploy cash (hopefully built over time and not during the selling stampede) averaging back in.

My plan ... Living within my means is step 1 of my plan with little or no bebt. Being diverisfied within my risk tolerance is step two along with being mindful of asset values. Maintaining a sizeable cash position (built over time) is number three especially during periods of high stock market valuations. Having a sell down plan once stocks hit correction territory (if felt warranted) is number 4 by watching days to cover for short positions for SPY increase. And, finally, have a buy back in plan for the rebound is number 5 while good value exist and the market is oversold. If it was worth buying at 2743 and above then it's worth buying at 2470 and below.

As a guide, I like to see the days to cover short positions in decline. In short, work the market by not letting it work you. Have a plan and follow it; but, be flexible and revise when warranted. Most of all I tray to stay calm knowing I've got cash and I can begin to work on finding my buys while others are looking to see what they will sell during the selling stampede. Things worked well for me during the last stock market selling stampede that started in late December 2015 through January of 2016 and ended in February. It followed pretty much as I scripted above. After the 500 Index hit the 10% threshold I begin to buy in steps as the stampede continued thus averaging my buys. During the downdraft I bought three times and on the upswing twice. Here is what Jeffrey Saut of Raymond James had to say about the last selling stampede.

https://www.cnbc.com/2016/02/01/selling-stampede-ended-last-week-saut.html

My take away ... Three consecutive updays ends a selling stampede.

I wish all ... "Good Investing."

Old_Skeet