Some people have been asking why I’ve been doing so much selling in the stock market lately when there is a strong potential for more gains to come. The reason is I’m taking a lower risk approach this year so as to build on, but not jeopardize, the record gains I had last year (a 164% gain!).
Right now my overall portfolio has earned a little over 9% in only 5 months. And although this lags some of the other major market indexes right now, my goal for the entire year was primarily my end-of-2021 projection for inflation (2.5%). My stretch goal for the entire year was two times that projection (5%). So, I have exceeded both of these by a large margin in just 5 months. So, I certainly don’t want to risk those gains.
As a low risk investor, I am primarily targeting earning at least the realized headline inflation by the end of the year (the Federal Reserve targets core inflation which strips out food and energy but I don’t think that is very realistic – so, I use the headline inflation number as my end-of-year target). Thus, the realized headline inflation would have to end the year above 9% for me to miss my expected target based on the 9%+ I’ve earned to date. And I don’t see that happening.
A secondary target I like to use as a low risk investor is the end-of-year gain of the S&P 500 (SPX) divided by 5. So, if the SPX earns 30% for the year, I would expect to earn about 6%. Likewise, if the SPX loses 30% for the year, I would expect to lose about 6%. Thus, the SPX would have to end the year above 45% for me to miss my expected target based on the 9%+ I’ve earned to date. And I also don’t see that happening.
As of yesterday:
1) the realized headline inflation was 3.5%.
2) the S&P 500 has gained 10.6% this year so far. So, at this point in the year, I would expect a gain of about 2.1%.
So, I have far exceeded both my primary and secondary targets above which means looking for stocks to sell probably makes a lot of sense for me right now.
Since I have far exceeded my annual targets for this year, I am employing a new strategy which involves selling every gain – even if that involves selling partial shares of stocks I own (i.e ., just those shares which have earned gains – those which haven’t I generally continue holding). The only exceptions to this are stocks I think still have potential over the long term given the increased probability of inflation, overheating of the economy, and interest rate increases (e.g., energy, utilities, gold, shorting of bond market, etc.). The reason for this is that investors are not going to wait for the Fed to decide whether or not they want to start addressing these issues (they’ve called much of this transitory meaning they believe these effects will fade over time). Investors are likely to start aggressively positioning themselves as soon as the economic data and other indicators signal these kinds of pressures.
Hopefully the above helps to give you some insight into how I am performing my investments this year. Most people need to take much higher risk than me so you probably wouldn’t want to use the approach I’m using. But some might.
You’ll be a very successful investor if you observe and learn from what happens and make adjustments to your investing strategies accordingly over time. So, investing strategies can change from time to time. And they should. Especially, when your risk category changes.
You can learn about all of my investing techniques via my “Invest Like a Pro in 10 Minutes a Day!” series of 4 books where you can learn the “end to end” process to investing and gain key investing insights and skills (https://brighterdayslifecoaching.com/published-books…/).
Also, you can read all about my stock market activities here: https://brighterdayslifecoaching.com/stock-market-activities/
I wish you much success in creating a brighter financial future for yourself, your loved ones, and those who follow.
Happy investing everyone!
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