One of the hardest lessons to learn about investing is to be
still. Learning how not to get caught up
in news and most importantly the noise of the moment. Learning how to wait for the shot. Learning how to control your breathing. Learning how to slow things down. Remembering that it is the long game you are
playing.
I have several friends who at the present time who have
“Buck Fever” they have seen the stock market on a tear for the last year, and
they want to jump in with both feet. I
can tell this from the nature of our conversations and e-mails.
They want to know how much I have added to my various investment
positions. They are surprised when I
state that I have not added significantly to any position, but instead I have
readjusted some of my position (Take Profits), and given the current conditions
I plan to readjust some more in the very near future, after 1 Jan 2014. Additionally I will not be in too much of
hurry.
Their response to this is “Are you crazy?” My reply is hardly! They want to know what I am seeing that they
are not. I tell them that we are all
seeing the same thing, but that it how we processes it, especially in terms of
the various lessons that we have learned to date in our lives and the
particulars of our portfolio.
My decisions are based on the particulars of my portfolio,
the condition in the market, and my age, and finally my sense of intuition, and
when do I want to pay the tax due on any gains.
After 1 January the taxes are due on 15 April 2015, rather then 15 April
2014.
The first two (Market and Age) are easy to explain, the
third (intuition) shapes my appetite for risk, and is an enigma, the fourth well
it the Wimpy rule (I will gladly pay you next Tuesday).
I tell them that what may be good for me may be bad for
them. To a person they all want a list
of reasons why at this time I am doing what I am doing with my portfolio. So in an attempt to comply with their request
here goes.
First reason is that the object of the exercise as always is
the buy low and sell high. At the
present time the market is high (especially when compared to my basis), will it
go higher (I hope so, that is why I have money in the market)? Yes.
When? (I do not know.) The flip side is can the market go lower?
Yes. When? (I do not know.)
Second the amount of the unrealized gain in my portfolio is
quite high, which is good, but one does needs to capture your long-term gains
when and if you can and if it makes sense, in context of carried capital
losses. At the present time it for many of my taxable investments
it does not make sense for me, although for some of my tax deferred investments
this is not the case since in the end they some will be taxed as ordinary
income when the funds are withdrawn, some will not be taxed at all (You have to
love the Roth).
Third is that everyone seems to be buying stocks, so maybe
it be time to be selling stocks. On the
other hand everyone seems to be selling bonds, and so maybe it might be time to
start looking at increasing my position in bonds, again if and when the
conditions are favorable to me. (Yes I
know that QE is coming to an end and Bond prices should drop as interest rates
rise, but sometime a good deal is a good deal).
The fourth reason is “Reversion to the mean”. This 2013 is a gross outlier, it is not normal,
and it is at least a 2 Sigma event. Will
next year be the same? Highly unlikely,
the law of large numbers is not in my favor.
All systems are self-correcting; you may not want to be
around for the correction, especially if you just dumped a large amount of your
net worth into the market just before it tanked. So a slow and steady approach is required
(Aim Small Miss Small).
Fifth reason is that I am starting to see articles in the
press that “This time is different”.
Unless there was some fundamental shift in the fundamental laws of the
universe during one of the nights while I was sleeping, it is not going to be different
this time, in the end the results are going to be the same, it is that the
timing of the events that will be different.
Sixth, the rate of contact by various brokers has been
increasing, either by phone or e-mail.
Most just want to help me in this time of uncertainty. How thoughtful, caring, and nice on their
part (Their mother would be proud of the concern for the plight of others). The calls go unanswered and the e-mail are
deleted, and in some cases the filters for my e-mail are adjusted. My though on brokers has been discussed in
other post.
Seventh reason is more technical in nature and it has to do
with CAPE for the market as of 1 November 2013 stands at 25.16, 6 January 2014
it was reported to be 26.07, and quite frankly this is getting in the nosebleed
range, and if it gets much higher (27-30) it will be a rectal bleed.
One would need to hold one share of the SP-500 for 25 years
for the current earnings to equal a price of that one share. I know how old I am and 25 years is very
close to end of my estimated actuarial lifetime. This is one of the particulars of my
situation alluded to earlier in the article.
At the end of the day I will still have money on the table
and in the game for in realty that is the only way to make money. I will have a little of my unrealized gain and
put it in my pocket waiting for the next opportunity to buy.
I tell them that I continue to reinvest dividends, I have
minimal amount of programed purchases, and that I continue to watch for other purchase
opportunities, and if and when they present themselves, I will act. But at the present time they are not forth
coming, so I have consigned my self to be still and will wait to take my shot,
since the basic rule for this endeavor as stated earlier is to buy low and sell
high.
