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Q&A With Bill Bernstein: Taking Risk Off The Table
Bernstein: Yes, when the intelligent investor does some trimming back, he usually feels like a dummy for the next year or two. And when he trims back again, he feels like a little bit more of a dummy. And he feels dumb for awhile each time after he does it. But then there comes a point, three to five years hence, when he feels awfully smart.
Hi Ted, thanks for posting the article on Bill Bernstein. I enjoyed the read as it reinforces what I have been doing and my thinking to manage my equity allocation within my portfolio during this bull market run.
With this, I decided to begin to sell about one percent of my equities starting this past January with every twenty five point of price advancement in the S&P 500 index. The Index started the year a little short of 1425. So with every 25 point upward movement from there I sold a sum equal to about one percent of my equities. I stopped doing this when my cash became about 20% of the portfolio. In addition, my portfolio pays out about 1.25% in a cash distribution, on amount invested, per quarter should I choose to take it; otherwise, this just accrues in the cash area of the portfolio.
I have now become flush in cash and looking for something to do with it. Since, equities seem to currently be the best asset for investment I have decided to let my equities run for a while. I may decided to raise my cash allocation, in the near term, form 20% to 25% leaving income at 25%, reducing equities from 45% to 40% and keeping alternatives at 10% once we get through December.
I’ll just have to take a read on the market after the first of the year. Currently, with it being about five percent overbought, according to Morningstar, as I write … Well, I rather keep my portfolio right sized in this equity updraft rather than trying to right size it in a down draft when a good number of investors are seeking the exits.
I am glad to learn that someone of great authority, like Mr. Bernstein, has commented and written on this subject. I think this is something a good number of investors might need to heed with putting some plan and course of action in place to deal with an anticipated market down draft. This equity train will have to transverse the down slope of the mountain at some point of time. The big question … When? Even while being overbought it does not look like much has been slowing it down of late!
Comments
Bernstein: Yes, when the intelligent investor does some trimming back, he usually feels like a dummy for the next year or two. And when he trims back again, he feels like a little bit more of a dummy. And he feels dumb for awhile each time after he does it. But then there comes a point, three to five years hence, when he feels awfully smart.
IU: It’s delayed gratification.
Bernstein: Exactly.
With this, I decided to begin to sell about one percent of my equities starting this past January with every twenty five point of price advancement in the S&P 500 index. The Index started the year a little short of 1425. So with every 25 point upward movement from there I sold a sum equal to about one percent of my equities. I stopped doing this when my cash became about 20% of the portfolio. In addition, my portfolio pays out about 1.25% in a cash distribution, on amount invested, per quarter should I choose to take it; otherwise, this just accrues in the cash area of the portfolio.
I have now become flush in cash and looking for something to do with it. Since, equities seem to currently be the best asset for investment I have decided to let my equities run for a while. I may decided to raise my cash allocation, in the near term, form 20% to 25% leaving income at 25%, reducing equities from 45% to 40% and keeping alternatives at 10% once we get through December.
I’ll just have to take a read on the market after the first of the year. Currently, with it being about five percent overbought, according to Morningstar, as I write … Well, I rather keep my portfolio right sized in this equity updraft rather than trying to right size it in a down draft when a good number of investors are seeking the exits.
I am glad to learn that someone of great authority, like Mr. Bernstein, has commented and written on this subject. I think this is something a good number of investors might need to heed with putting some plan and course of action in place to deal with an anticipated market down draft. This equity train will have to transverse the down slope of the mountain at some point of time. The big question … When? Even while being overbought it does not look like much has been slowing it down of late!
I wish all … “Good Investing.”
Old_Skeet