From someone that consistently beats the market
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Click on the image below to download the IIC as a printable .pdf file.*
Quite A Day, Eh? 3/25/15
As those of you who do like to watch the market on a daily basis already know, stocks were down across the board today, with two of our favorite sectors (biotech and high-tech) getting hit especially hard.
Not surprisingly, the sizable drops seen in a number of the major indices are causing the talking heads on TV and internet to ask “is the bubble about to burst?”, and this sensationalistic journalism is, in turn, only helping to add fuel to the fire on the sell side of the equation.
However, before you decide to join the fray of panic-selling that might be getting underway on a larger scale, I want to first remind you of two of the most important mantras that I refer to fairly often in the newsletter:
1) Trends often go on for far longer than seems reasonable,
and
2) Our job is to position our Portfolios based on what the market is actually doing, not on what we think (or are worried) it might do.
As you can see in the Eyebrow Levels table below, all five of the major indices I use to gauge the health of the overall market are still flashing “bull market” signals… and since the whole point of creating this table is to help take emotion out of the equation when it comes to trying to figure out whether it is wiser to be buying or selling stocks by identifying “trigger points” ahead of time, I want to remind you that it is important that you try to do your best to stick to our pre-determined game plan, even if you’re feeling a bit anxious right now.
If and when the five indices in that table all do dip below their one eyebrow levels (and stay there for at least a day or two, mind you – “for just five minutes” won’t count as a legitimate sell signal, for example), you can rest assured that I will change my bullish tune and encourage you to do some selling rather than buying, even if that day happens to come tomorrow (I’m not expecting it to, but you never know!).
However, for now, the trend is still up… and thus, based on the two mantras mentioned above, our job is to remain as fully invested as we can comfortably be at night.
Of course, as those of you have been with me for awhile now already know, there is a third mantra that also comes into play during situations like the one we find ourselves in now, namely, “Always sell down to the sleeping point.”
Emotion is far and away one of the biggest enemies of successful investing, and if you are finding yourself losing sleep worrying about your portfolio, you are strongly encouraged to sell as much of it as you need to in order to sleep easily at night so that any investment decisions you make in the future will be made from a place of calm, level-headedness rather than from a place of anxiety or panic.
That being said (and with the caveat again that I may be telling you to sell instead of buy as soon as tomorrow), I really do want to encourage you to remain as fully invested as you can comfortably be under the circumstances.
Though it is true that stocks are not cheap at this stage of the game, in my mind, they are not terribly overpriced either (with some exception here and there, of course); however, and perhaps more importantly, we have not yet seen the sort of wildly bullish activity that almost always accompanies what (in hindsight, of course) turns out to be “the top” for bull markets.
Not only does this mean the odds favor (but do not guarantee, mind you!) that there is probably still another leg up in store for the market, I want to also remind you that if this final “blow off” phase does materialize, history suggests it will almost certainly prove to be one of the most profitable phases of the bull market (and thus, you really don’t want to miss it if you can help it!).
While there may a bit more to go on the downside before the current slide ends, as long as the major indices are holding above the one eyebrow levels spelled out in our table, you are encouraged to think about buying rather than selling.
Those of you who are more risk-averse may want to simply wait for the April issue to come out before you pull the trigger (just to see what my latest thoughts and new buy limits might look like), but those of you who are more tolerant of risk are encouraged to look at the current sell-off as an opportunity to add to your positions.
In particular, based on where things stand as of the close today, I would especially encourage you to take a look at Affymetrix, Electronic Arts, First Solar, Luminex, MannKind, NVIDIA, Perry Ellis, Tekla Life Sciences, and Walt Disney.
Yes, volatility like we’re experiencing right now can be tough to stomach, especially if you are fairly new to investing; however, please recognize that if you keep your wits about you and stay focused on the long-term, these are the sorts of situations that almost always represent buying opportunities as part of an ongoing bull market… please do not hesitate to contact me if you have any questions!
