For those that have been following my past post know I run an adaptive allocation, of sorts, within my portfolio.
Since, May has now arrived I made another downward adjustment to my asset allocation by reducing equities from about 52% to 47% since the late February rally began. This was done for several reasons. 1) Through the years my family has followed a seasonal investment strategy where we reduce our exposure to equities during the summer months and then ramp our allocation in equities upward come fall. 2) With a TTM P/E Ratio of 24.1 (as reported overall earnings) for the S&P 500 Index as of this past Friday stocks, in general, are way too richely priced for me and I am dialing back my allocation downward towards it low range for equities and raising cash by a like amount. Currently, my equity allocation ranges from a low of 45% to a high of 55%. Over the past three years I have throttled my exposure to equities downwrd by about five percent per year and have been raising my allocation to cash. Coming off 2008 market lows I was about 65% equity. This year, I still have another two percent left to trim before June comes. Within equities I have also tilted my sector allocation towards a defensive posture (consumer defensive, healthcare, and utilities) and when adding both real estate and the communication service sectors, I bubble at close to a fifty percent combined allocation for these five sectors. Then throw in technology and I am now up to about 60%. Plus, I am overweight energy and materials by a couple of percent.
One might also want to read David's commentary this month in which part of it covers current stock market valuation.
Summer is on its way ... and, Old_Skeet is now off to play.
With this, I am wonding what others might be doing?
Have a great summer ... and, most of all, I wish all "Good Investing."
Comments
http://www.mutualfundobserver.com/discuss/discussion/25925/was-yesterday-it#latest
Just like on that day will be interested how the rest of this day unfolds and will be selling some junk corporates before the close if it looks sick. Junk is less than 1 and 1/2% from all time highs and had a super run the past few months. Bank loans have had but a few down days since 2/11 and severely overbought so may be selling some there too. Hopefully today much ado about nothing. But a lot of the risk-on trades such as oil stocks and small/mid cap biotech taking it on the chin too today.
3-4 weeks ago I sold off a small stake in the p/m fund OPGSX. It had risen 44% since purchase last September. About 2 weeks ago I sold a somewhat larger stake in a Latin America fund PRLAX. It was up over 35% since purchase in January - largely on the strength of energy and commodities over that time. Proceeds from both sales went into my conservative fund mix (I'll call it the Watching Paint Dry (WPD) portfolio.)
Also gradually unloaded about half my shares in PRNEX (natural resources) after oil rose above $40. All shares purchased @ between $25 and $30 were sold (it's currently about $31). Proceeds also went into the WPD portfolio. I suspect the big gains in NR & energy are over for the year, but remain optimistic for PRNEX (and natural resources in general) looking out two or three years.
Good fortune to all. Look forward to seeing what others are thinking and doing.
Derf
P.S. I have a small stack in NR ,unfortunately for me I bought at a higher price than you.
* https://docs.google.com/spreadsheets/d/1NrMJ1hs2zhLrXc-WgjdbA_0uf0KUPzvKdgKUJZvyFCM/edit?usp=sharing
** https://docs.google.com/document/d/1XxnEl6aAsU56Afkp_lXAKb8xGWq65wiY8iw3RGTtyuU/edit?usp=sharing
I think you might have me confused with someone else. I don't ever recall owning MSFBX. Perhaps, if you search the ticker symbol you can find which thread that it was discussed. Sorry, not me.
Skeet
Nothing!
I am not buying, not selling, and doing almost zero pondering. I leave the deep pondering for the heavy weight investors who think they can forecast market direction. That's a Loser game since nobody persistently succeeds at it.
As Warren Buffett observed: “The Stock Market is designed to transfer money from the Active to the Patient.” I'm more inclined to the Patient grouping.
I make relatively few portfolio changes, especially none based on a perceived seasonal summer time doldrums period. Even if summer market rewards are deeply attenuated from overall equity returns, they are likely still superior over near-zero cash prospects.
Also I practice portfolio changes that potentially can significantly enhance a portfolio's overall returns. Minor allocation adjustments don't have that power. Minor changes just are noise to annual portfolio performance at a cost that enriches the agents and not the investor.
There is much in favor of inactivity, of "doing nothing". Like Bogle advocates, just staying the course has its merits.
Best Wishes.
Your question assumes a higher level of knowledge and a greater degree of conviction than I possess. (Note underlined words at beginning and use of verb "suspect" when referring to energy/nat resources.)
Should have explained that the funds vacated completely (OPGSX and PRLAX) were considered highly speculative - well outside my usual comfort zone. That's not the case with PRNEX, which I'm committed to holding (in varying amounts) for the foreseeable future.
Can't offer any advice regarding your NR holdings, but wish you the best of luck.
Second, I’d like to address the passive stance that another poster has taken and comment further on an adaptive investment strategy that I follow. In order to have a good understanding of adaptive allocation strategies I have provided a link to a paper written by William F. Sharpe of Stanford University.
https://web.stanford.edu/~wfsharpe/aaap/wfsaaap.pdf
To get directly to the chase without reading the whole paper ... on page 20 of this paper one will find writings on Optimization Based on Reverse Optimization. Then on page 22 one will find writings on Adaptive Asset Allocation Policies.
I have chosen to follow a flexible strategy to investing following an asset allocation model that was developed by my financial advisor that currently has me with an allocation to equities between 45% to 55%. This was done through a risk tolerance based analysis that considered a good number of things. With this … How does one know when to hold 45% equity and when to hold 55% equity? I believe certain indicators that I often reference provides good direction in answering this question; and, which I have previously have referenced as my SWAG method (Scientific Wild Ass Guess).
In review the money I parleyed into the market during the January/February downdraft has now returned 18.3% up until the point that I chose to close these positions out. Since close out it has returned, by my thinking a sum equal to that of the S&P 500 Index’s movement since the parley is now in cash and with this has stable value. That amount computed by me equals to date 1.42% which is the amount the Index has declined. Should the Index continue to decline then, to me, this cash position becomes move valuable, in theory, until redeployed.
Here is another interesting piece one might choose to read on the subject of “Sell in May.” I have linked it below for your reading enjoyment.
http://www.marketwatch.com/story/why-we-should-all-sell-in-may-2016-05-04
In conclusion: I remain with my active adaptive allocation strategy while seeking another buying opportunity.
I am now off to play for the day with my engineer high school buddy who also follows a somewhat passive strategy utilizing index funds consisting of stocks, bonds and cash; but makes allocation adjustments form time-to-time as I do. Please note: We both wear smiles as our investment strategies whether active or passive have been good to both of us.
Concerning Buffet - Like Yogi, he says a lot of things. Some I agree with (like swimming naked)
"I'm about one-quarter Coca-Cola," he said. "I elect to get my 2,600 or 2,700 calories a day from things that make me feel good when I eat them. That's my sole test," he said. "I like fudge a lot. Peanut brittle. I am a very, very, very happy guy." http://www.cnbc.com/2016/04/30/coke-criticisms-are-one-sided-immature-and-stupid-berkshires-munger.html
Let cash to build while waiting better entry points. Anything can happen in election year.
Thanks for reading my post and your question.
I doubt that you folks can learn much from my learning experiences since they are rather mundane and have been reported on MFO many times.
In the 1950s I was a semi-active trader who invested in a limited number of individual stocks. My choices proved highly questionable and my success ratio was unimpressive. Over time I learned about managing costs, broad diversification, buying for the long haul, and challenging the selling tactics of the investment industry.
In the end, I morphed in stages to the mutual fund industry, to extending my holding periods, to resisting my trading impulses, to diversifying within the fund industry, and finally to a heavily weighted passive mutual fund strategy. I still have a fraction of my portfolio in actively managed products.
I adjust my portfolio far less frequently than I did earlier in my investment educational process. Historically, my trades tended to be neutral; I made as many losing adjustments as positive ones. Making small portfolio changes (perhaps of order 5%) doesn't have the likely payoff to substantially enhance end wealth, although it might contribute to a person's feeling of control.
To each his own investment style and strategy. I never recommend that my biases and prejudices should be suitable for others. An investing comfort zone is only achieved by being true to your own insights and instincts.
Thanks again for asking since it allowed me to reinforce my belief that everyone should be his one and only investment master.
Best Wishes.
P.S. Bismarck said it best: " Fools say they learn by experience. I prefer to profit by other people's experience.” I elect to participate in the MFO discussions because I really do profit from the experiences reported by so many astute and honest MFOers. To disagree is not to disrespect. Many thanks to everyone.
One fella's minefield is another person's treasure.
Timing is everything.
Regards,
Ted
Thanks- OJ
Regards,
Ted
S&P
https://markets.morganstanleyclientserv.com/MSOnline/InternalApi/GetPdfDocument?dockey=1949-35906A10-20160503&downloadfilename=Research-Document
Morgan Stanley:
https://markets.morganstanleyclientserv.com/MSOnline/InternalApi/GetPdfDocument?dockey=1134-aaff4d16da9911e594037d321b10ff78-1&downloadfilename=Research-Document
Regards- OJ