With the mini burst upward in stocks, the call options I purchased did their job and bumped up my stock exposure from 20 to around 30% as stocks have rallied. Given that I am running a portfolio to maximize income while minimizing risk, I have cut down the equity exposure in order to capture gains in stocks. Put another way, I am not looking for home runs, I am looking for singles, or even getting to base via a walk or hit batsman!
So far this month, the portfolio is up about 1% which is nice progress given that my goal is inflation plus 2%. YTD is about 5%.
I think the fed is telling us very plainly that they will not let rates go up. The long term bonds have come off about 8% in the last month (looking at TLT as a proxy). I think it is worth buying some on the dip here.
Overall, I am bringing stocks down to about 15-20% on this rally.
3 comments:
Hi Mario, I think the market has room to run as this fed position is most unprecedented. My hunch is most managers were caught off guard by the bold fed position (had already sold on the news early) and will now gradually dedicate capital playing catch-up and culminating in a crescendo by year end. A near term pullback would be expected at any point of course because we have moved up quite a bit in a short period. I suspect a near year end high, because of the usual tax implications of selling earlier in 2012 will result in an earlier tax bill in April 2013. This is of course is instead of delaying the sale to Jan 2 2013 which results in a April 2014 tax bill as you know, which most investors will do. This is if God willing Romney is elected. If Obama is leading, I look for a dampening effect as we get closer toward Nov 2, 2012. But who knows? Rick
Hi Rick,
Thanks for the comment! I agree that the Fed was a bit of a surprise. It seems plain that Mr. Bernanke, is not letting the market go down if he can help it. It is very strong medicine that we will be having 0% rates for the next few years. It should help the banks' balance sheets. Not sure about any multiplier effect rippling through the economy. Banks are as stringent as they have been for the last few years - not lending any money. Of course, we have to be careful to get what we are hoping for as that is what got us into trouble in the first place.
I agree that the market is underinvested in stocks and that is going to support or propel the market higher for the time being. Barring any war or supply disruptions in oil, the market should continue upward. I like moving my exposure closer to my 45% benchmark, but only with call options which I find priced a bit cheaply.
Tax issues have always been tricky for me to evaluate. I personally don't like making decisions based on taxes, but it not doubt has an impact on long term returns and is an important factor.
Hi Mario,
Great to hear from you. As I mentioned to you when we met I am banking on a financials rebound. My hunch is these banks that are trading below tangible book value will gradually revert towards their full valuation as their balance sheets improve as you have mentioned. I think improving real estate valuation and this most recent Fed move will propel bank stocks higher. I think the Fed induced rally has only partially been realized. I am suspecting a substantial leg up very soon before the election. I believe the banking rebound will help move the market higher.
Here is a little something you might find very entertaining.
My trading partner and I always use the profound thought below to describe the talking heads on CNBC, etc....
Always remember, There are two types of people in this world:
1) Those who don't know
2) Those who don't know they don't know.
I know this first hand, Hahaha!
Post a Comment