What’s your plan for how to manage your portfolio while the market continues to go lower?
Go short certain sectors? Go into cash? Buy up ETFs? Buy Real estate? Tell us what and why.
Best Answer
312 points
MoresbyChief answered one year ago …
Completely depends on your time horizon and your ability to stomach paper losses. Personally I am an investor for the very long-term, ie 20 years +. Buffett always says his favourite holding period is 'forever', and I tend to go along with this philosophy, and avoid trying to 'trade' in and out of the market.
I am unconcerned by short term losses in my portfolio as I believe in the stock market as a long-term wealth generator. I stick to boring low-cost index funds and ETFs, and have become very strict when selecting individual stocks - my rule of thumb is that if I'm not happy about potentially holding it for the next 20 years and if I would worry about it losing 20% of its value over night, then I won't buy it.
Therefore I certainly will not be selling anything in my portfolio - essentially I do not believe I own anything that will not bounce back in the long-term, therefore to sell now would be to buy high and sell low, exactly the opposite of what you should be doing, but exactly what the average retail investor ends up doing.
What I am doing is gradually buying into the market over time. I am doing this through automatic monthly investments into 10 or so indeces and ETFs. This way it happens every month without any input from me and avoids the potential for me getting scared away from the market if it continues to decline. With a fixed investment each month, it also means that the lower the market goes, the more units I will be buying. As it rises I will be buying less, therefore ensuring that my portfolio is weighted towards the cheaper end of the market. On significant declines - say for every further 10% drop in the markets - I will be making additional lumpsum investments to take advantage.
Admittedly this is not a sophisticated approach and many on this board will probably laugh it down. What about options, short ETFs, covered calls...I hear you say?? I'm happy to leave these to the professionals and stick to what I truly understand. And that is, that over the long run the stock market is the world's greatest wealth-creating mechanism. Buy low, sell high. Buy when no-one else wants to. Buy when there's 'blood in the streets', as they say. I'm confident that if I stick to this approach I'll be doing better than the average retail investor who buys into a late-stage bull and then panics in a bear and sells out.
As you can see I'm not a market timer and am happy to buy into market weakness - in 1 or 2 year's time my portfolio may look horrible, and I realise that. However over the long run I am confident that I will be looking at a decent annualised return.
Answers
158 points
marketdrop answered one year ago …
Leaving the 401 alone . Watching the stocks as fear comes before buy.
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116 points
ChrisFindley answered one year ago …
I think That as long as your Portfolio Is diversified then You'll Be leveled
Read more from ChrisFindley2769 points
Oldman answered one year ago …
So far, my portfolios are down about 10% from their October 9, 2007 highs, and about -6% from the year end of '07. These portfolios contain a large cash position since the first sell off in May, 07. They also are well-diversified, and contain a lot of dividend-paying securities, CEF's etc. So the income stream adds to the cash position, and at some point I might add to some positions, but in 2000-2002, there were some rallies, and then the Bear was back. This time, I'll wait until securities I like have prices that are at levels < where they were in 2003-2004.
Other sectors or securities that have held up are in Health Care Reits, Oil Services, Gold and Gold Mining, Natural Resources, Rural Telcoms, CanRoys, and Bulk Shipping.
380 points
SirCrashton answered one year ago …
I use a combination of selling covered calls and buying in-the-money put options as follows:
I buy stock in large cap companies having solid fundamentals in growth sectors---stock prices tend to be relatively stable and they are better able to recover from short term corrections---and sell calls against them at a strike price higher than what I paid for the stock, but ideally no more than one strike price out of the money to generate a high premium. I will sell an option up to six months into the future, if necessary, to make a reasonable return.
Depending on whether I plan to invest for the long or short term, I either set a stop-loss limit or buy an in-the-money put option to minimize the damage if the stock were to take an unexpected plunge. If I were to get stopped out and lose my covered position, I can buy back my call option for pennies on the dollar before expiration if I have any reason to believe that the stock might recover enough to become a liability against my uncovered situation.
If the stock price declines, the put option allows me to exit my position in the stock with a minimal loss or even a small gain. If I want to keep the stock, the gain in the put option price helps to offset a short term loss in the stock price.
In a bear market there’s a good chance that the call options I sell will expire worthless so I will retain the full premium paid and I keep the stock. If the stock gets called away, I don't care: I profit from the sale and the option premium. Also, there’s no commission to pay on the sale if the stock gets called away.
Rather than shorting stocks, I also buy in-the-money put options on specific companies, the prices of which I believe have a high probability of declining (currently almost any company in the Financial Sector). Options limit my investment and no margin is required for the trade.
The main drawback to this strategy is that options are not available for all stocks.
