Spring Cleaning One's Portfolio
I'm not calling this the top of the "Trump rally". But this reminds me in many ways of the housing bubble just over a decade back; growth was slow, job growth and wages were sluggish but real estate prices were robust. Home ownership ratios were reaching all-time highs; people without a conventional 20% down and with dubious jobs/incomes got access to funds to join the competition bidding house prices higher. This was aided and abetted by both major political parties; Bush took particular pride in peak home ownership on his watch.
We have seen stock manias before, I still recall the absurdity of "profits don't matter" Internet business models. I never bought into the hype, but that doesn't means I didn't lose a lot of money. In fact, I'm still carrying over losses on taxes from the post-2000 tech meltdown (I had overinvested in the sector and was too slow to pull the trigger on bad choices), and I've had negligible offsetting gains in taxable (non-retirement) asset accounts. Not that I've been, on an aggregate basis that much better on my retirement accounts during the Obama era: I was probably far too conservative in part because I don't want to gamble with my retirement money: I don't have a pension plan to fall back on; I'm not even considering retirement over the coming years. I've done okay over the past year, but I would have been better off putting a large chunk in an S&P 500 ETF back in the spring of 2009.
So I don't see how the robust stock market can be sustained; there are some adverse signs already: retailers are struggling, jobs reports, while remaining positive, have fallen below projections, stock market volatility is extraordinarily low, the energy sector continues to be soft, banks see sluggish growth and increasing costs in lines of business--not to mention there signs that the retail investor, who has been reluctant to join the market since the Great Recession, is joining the party: this is a classic contrarian signal, because the small investor almost always too late into the rally. US stocks are also looking quite pricey relative to the global market; China's has been in a slump as the government struggles to deal with a shadow banking crisis.
As for precious metals like silver and gold, I think the Fed's attempt to transition off nearly 0% interest rates with modest rate hikes serves to strengthen the dollar, which is a bearish indicator to the sector. Personally, I'm skeptical given softening economic conditions to believe that the Fed will raise rates; if and when the Fed stops defending the dollar and/or starts looking at future rounds of quantitative easing, prospects for the sector improve. Another bear hedge is bonds, the reason being that dropping interest rates are typically good for bond prices. But bond prices are quite high from a historical perspective; if I were looking at bonds, I might try to diversify globally and/or focus on US Treasuries or investment-grade corporate.
Yes, I took and did well in my MBA finance class, I've done a reasonably good job taking my university 403B (self-financed) rollover and multiplying it over the years. I've taken advantage of the boom markets in biotech and for the most part I got out of the energy sector before its ongoing recent correction. For a while I was applying a decision rule of selling, say, about a 7.5% gain/loss. That led to some unintended consequences, like not letting my winners ride.
Although I still do some stock picking, I have been firm over not putting too much (e.g., >5%) of my portfolio in any issue or fund. I look at a variety of fundamental and technical analyses in buying and/or selling and I may dollar average establishing a position. But there is always room for improvement. For example, over the last year or so, I've had an overemphasis on a struggling biotech sector; individual stocks vs. ETFs, closed-ended/mutual funds; and domestic vs. international issues. No bonds at all, because I think bonds are in a historic bubble. So late this week I've simplified my portfolio by selling off most individual stocks except a couple; one of them was an agonizing capitulation in a well-known biotech company, finally taking a 30% loss. (Think about it, though: just to get to break even, you would need to see the stock appreciate almost 50%.) I'm still kicking myself because it had all the earmarks of being a value trap, with a bargain-basement P-E ratio. I had bought into an expectation that it would stabilize sales of its market-leading hepatitis and HIV medicines (under competition), roll out new drugs, and/or make some key acquisitions. (With my luck, some of that could happen now that I cashed out. Trump's FDA may loosen a long-standing logjam of approvals.)
If and when the markets correct, it will still hit my portfolio, including any global market exposure. That's a part of the risk you accept for superior stock market returns over time. I'm really scared to death Trump is going to provoke a global trade war. Already he's talking of "renegotiating" NAFTA. I'm emphasizing more diversified vehicles, like mutual funds and EFT's, but I'm focusing/filtering type of issues. I still have biotech exposure, some exposure to real estate dividend issues, a stake in high tech and semiconductors, and mid-caps and small-caps. As always, this is not a financial column; past performance does not guarantee future results; invest at your own risk.
Trump's First Hundred Days
Today officially marks the end of 100 day of POTUS Trump. I've made it clear in my posts and tweets that I generally have a negative assessment. Specifically, my criticisms have included, but are not restricted to:- his anti-trade actions, like on TPP and rumors about "renegotiating" NAFTA
- his anti-immigrant actions, including refugee bans, sanctuary cities, the wall, etc.
- his unprovoked military strike in Syria
- his expansion of executive power, including the nature and extent of executive orders
- his failure on priority #1: the repeal of ObamaCare
- his scapegoating and political threats to the Freedom Caucus over the political failure of the Obamacare Repeal & Replace in the House.
The story isn't all bad. I give him credit for:
- his inspired successful nomination of Gorsuch to SCOTUS
- other impressive choices at Defense and the FCC, FDA, and EPA
- long-overdue first steps at regulatory reform
- plan for long-overdue lower, flatter business tax rates and tax simplification.
