Dec 29
Portfolio Management: Checking the Indicators
Portfolio management is front and center for investors who may still have cash to invest after year-end tax selling, or money from the sale of stocks due to foresight that this market was going to tank. Before the market opened this morning, I check the technical indicators for each asset class of interest. Beginning with VTV of the “Big Six” down through VEU, VWO, VNQ, GSG, PCL, etc. I found in every case, the 26-Day EMA is still below the 52-Day EMA. This last indicator is a clue we still have not seen a market turn-around even though the S&P 500 is 18% off its November low - and 18% is a huge jump in this bear market.
Due to setting limit orders at a variety of percentages below current price, I continue to pick off stocks and ETFs at different price points. Right now I have a number of limit orders set for different portfolios, hoping to pull in a few more investments and rebalance the portfolios at reasonable prices.
On one forum, a reader asked if we hit the bottom of this bear market? No one knows for sure. However, each investor answers that question based not on what they say or think will happen, but rather, how they behave. If an investor holds cash and is sitting on it and buying nothing, then that behavior says they think the market is heading lower. If the investor is buying at market price, then they reason the market is headed higher or at least the stock or ETF they purchase is going to go up. If the investor is setting limit orders at different percentages below current prices, then the investor is uncertain as to the direction the market will take. This is where I am at this point in the journey through this terrible bear market. My sense is, it is going to take years to pull out of the current mess we are in. It is difficult to think of another administration that left office with the country in worse shape. The Nixon administration comes to mind as a comparison, and we remember it took another ten years to come out of that funk.
As investors, we need to deal with the situation as handed to us. I’ve suggested many times, take a few moments to walk through the asset classes that make up your portfolio. I have a post-it on my monitor showing the ten to twelve asset classes of interest. Then I bring up my StockCharts graph and enter all the Vanguard ETFs (one at a time) that represent the different asset classes. Using this technical information, the principles of asset allocation, QPP analysis (explained in more detail over on Premium Content), and special considerations for different portfolios, I sum this information into an investment plan. Examples of those plans are available.
Under current conditions, the expected return for most portfolios is around 10% with a standard deviation of 15% to 18%. The Diversification Metric (DM) comes in around 30% to 40%, a little lower than we prefer. With careful selection of stocks, we have been able to increase the DM percentage, but not significantly.
Lowell Herr
Photograph: Mt. Bachelor in early spring. Glimpse of Three Sisters to the far right.
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