Sunday, February 11, 2018

What Monday brings --- opportunity to add or trim

Like many who watch the stock market, looking ahead at the coming week is a time to reflect.  All of the usual has been said by pundits regarding the drastic volatility of the last two weeks.  Is it a normal correction or a major reset, and all of that talk.  Most of the talkers are even afraid to make any projection at all, seeming pleased to show that they remember what volatility means after the last year or so.

Individual investor decisions are guided by individual needs.  How astute an observation?  For most it would seem that it is not a time to be aggressive on the buy side except in special situations.  Anyone who has never found an entry point into Google could watch now.  The problem with pruning a long term portfolio is that often the taxable gains can be substantial.  Yet stocks in the portfolio purchased in the recent past that have modest gains by definition were bought for what were intended to be solid reasons with a dose of intuition that has at times worked well.  Cut back on the new ones with little tax impact or cut back on the old ones with substantial tax impact.  The classic advice is to never make investment portfolio decisions based on tax.  That may often be good advice for institutions but for individuals following "never" is not always right.

The easiest way to cut back here is on index positions, pro-rata extended market, total market, and S&P funds.   Finger will held up outside the door tomorrow to see which way the wind blows.

This downturn is NOT over, no matter what happens tomorrow or in the coming week.  Reasons for a further decline are multi-faceted, from politics and governance, to usual and legal trader games now that there is volatility, and the existing overlay of global events.  The overriding reason is valuation.  The math mostly still works now on the ROE and cost of capital components, but longevity of returns due to Trumpian uncertainties is an overhanging question.  The benefit of the tax bill is done for investment analysis purposes, already factored in.

That's the "thinking out loud" for today --- not so compelling but it is a process.  That process is expected to begin tomorrow.  It may be bumpy.


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