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Market Risk Elevated Heading Into Distribution Season 11-27-20

Summary:
Portfolio Positioning Update The idea of “building the ark” has continued to be our motto over the past week in our portfolios. Specifically, our primary focus is to adjust our allocations, capture profits, and protect capital when the “risk/reward” profile becomes unbalanced. Therefore, given the ongoing extremes of the market, as discussed above, the imbalances suggest a more cautious approach to portfolios currently. As such, we continued reducing our equity exposure, adjusting our bond holdings, and raising our cash levels. Earlier, I discussed in our “3-Minutes” video, the risk of selling pressure after the holiday as pension fund and institutional managers rebalance and mutual funds distribute capital gains. [embedded content] As shown below, with fund managers carrying some of the

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Portfolio Positioning Update

The idea of “building the ark” has continued to be our motto over the past week in our portfolios. Specifically, our primary focus is to adjust our allocations, capture profits, and protect capital when the “risk/reward” profile becomes unbalanced.

Therefore, given the ongoing extremes of the market, as discussed above, the imbalances suggest a more cautious approach to portfolios currently. As such, we continued reducing our equity exposure, adjusting our bond holdings, and raising our cash levels.

Earlier, I discussed in our “3-Minutes” video, the risk of selling pressure after the holiday as pension fund and institutional managers rebalance and mutual funds distribute capital gains.

As shown below, with fund managers carrying some of the lowest cash balances on record, we could see selling pressure to make distributions. 

With the markets exceedingly exuberant on many fronts, caution is certainly warranted. With margin debt near peaks, stock prices at all-time highs, and “junk bond yields” near record lows, the bullish media continues to suggest there is no reason for concern.

Of course, such should not be a surprise. 

At market peaks – “everyone’s in the pool.”

“The investor’s chief problem – and even his worst enemy – is likely to be himself.” – Benjamin Graham

Market Risk Elevated Heading Into Distribution Season 11-27-20

7-Impossible Trading Rules To Follow

In the “heat of the moment,” it is easy to get swept up into narratives as the “Fear Of Missing Out” overtakes our logical thought processes. As such, here are the 7-impossible trading rules to follow:

1) Sell Losers ShortLet Winners Run:

It seems like a simple thing to do, but the average investor sells their winners and keeps their losers, hoping they will eventually return to even.

2) Buy Cheap And Sell Expensive: 

If an investment isn’t “cheap, – it isn’t. Don’t make excuses to justify overpaying for an investment. In the long run, overpaying always reduces returns.

3) This Time Is Never Different:

As much as our emotions and psychology always want to hope for the best – this time is never different. History may not repeat exactly, but it generally rhymes.

4) Be Patient:

There is never a rush to invest. There is also NOTHING WRONG with sitting on cash until a real opportunity comes along. Being patient is an excellent way to keep yourself out of trouble.

5) Turn Off The Television: 

The only thing you achieve by watching the television from one minute to the next is increasing your blood pressure.

6) Risk Is Not Equal To Your Return: 

Risk only relates to the loss of capital incurred when an investment goes wrong. Invest conservatively and grow your money over time with the least amount of risk possible.

7) Go Against The Herd: 

When everyone agrees on the market’s direction due to any given set of reasons – generally, something else happens. Such also cedes to points 2) and 4). To buy something cheap or to sell expensive, you are buying when everyone is selling and selling when everyone is buying.

Happy Thanksgiving.

Market Risk Elevated Heading Into Distribution Season 11-27-20


The MacroView

Market Risk Elevated Heading Into Distribution Season 11-27-20

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See You Next Week

By Lance Roberts, CIO


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Market Risk Elevated Heading Into Distribution Season 11-27-20


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Market Risk Elevated Heading Into Distribution Season 11-27-20

Lance Roberts
Lance Roberts has sharpened that lens with 30 years in the investing world from private banking and investment management to private and venture capital. Lance Roberts’ perspective and common sense analysis is sought after by media outlets such as Fox 26 News in Houston, CNBC, CNN and Fox Business News along with numerous publications including the Wall Street Journal, USA Today, Reuters and the Washington Post. Roberts is the Editor of the X-Factor report and publishes the blog Daily X-change.

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