Dip Trade Out - Account Risk Change
Dear Clients & Friends,
This weekend’s reading is important, so thank you for taking the time to read it.
When the market fell more than 10% last year, we bought into that dip for most clients by executing the age-tested “buy low, sell high” strategy. We finally exited that dip trade. Most clients earned an extra 8-15% on the position purchased in the dip trade.
For months we have been discussing the technical importance of the S&P 500 index recovering from its 2018 fall and reaching 2,880. As recently as yesterday, some clients had admitted that they were skeptical about whether or not the S&P 500 would fully recover before the next recession appeared. However, with confidence and discipline, everyone who participated in the dip trade came out with a few extra pennies in their purse.
We are pleased. What now?
The American economy continues to be in “growth” mode. We don’t believe that a massive market drawdown will happen very soon. However, the growth of the global economy has shown unambiguous signs of weakening. This doesn’t mean that the economy is receding, or even stagnating. In fact, jobless claims for the week of March 30th reached the lowest level since 1969! But, instead of running at 80 miles per hour, we’re probably at 40mph, and slowing.
For many reasons, we at MORWM expect the stock market to end 2019 higher than it is today. On the other hand, we’ve discussed the possibility that the market would “top-out” sometime in 2019 for quite some time. This could render the markets lower than they are today in 2020 or 2021. Disciplined investors are just as concerned with the long term as they are with the short term. Therefore, while we are not jumping ship, we are taking inventory of our life rafts.
So, what’s the next step, and what should our expectations be?
As we redeploy the proceeds from this week’s sales, we plan to simultaneously rebalance portfolios with a projected risk profile that is slightly more conservative than the one your long-term portfolio design calls for. This doesn’t mean that everyone will suddenly become a conservative investor. It means that if you are usually very aggressive, you might soon be moderately aggressive. If you are usually moderate, you might soon be moderately conservative. If you are usually conservative, you might soon be a little extra conservative.
The end game is to walk softly over the next several months so that we have extra money on the sidelines when the next significant downturn happens. This way, fresh money can be deployed when the market hits its next low. However, we don’t want to go too far in this direction because, as I previously said, the economy is still in growth mode. We don’t want to risk giving up too much upside potential in case the next market downturn is further away than we think.
There is also the possibility that an artificial growth spurt may occur if the
President adopts short-term stimuli in order to assist with his reelection. However, artificial economic boosts rarely persist, and may cause an unnecessarily frothy market to fall further towards the bottom.
Because we are not exiting the market, portfolios are not fully sheltered from the storm. Long term investors stay invested long term - volatility is part of the journey. We are leaning towards the conservative side so that we can capitalize on the next downturn. So, lets make sure that we are all buckled up. When all is said and done, if we take it easy when the market is high and are diligent and aggressive when the market is low, then market downturns can actually be a very profitable part of the cycle.
“You make most of your money in a bear market,
you just don’t realize it at the time.”
-Shelby Cullom Davis
Thank you for taking the time to read this update. Have a lovely weekend.
Matthew Ramer, AIF® Principal, Financial Advisor MOR Wealth Management, LLC
1801 Market Street, Suite 2435 Philadelphia, PA 19103 P: 267.930-8301 | c: 215-694-4784 | f: 267.284.4847 |
601 21st Street, Suite 300 Vero Beach, FL 32960 P: 772-453-2810
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