Strategy in the Face of Volatility

I planned to take tonight off since it is my Birthday and Mrs. OldProf is preparing my favorite dinner. On the other hand, I like to post whenever there is a market development that will get a lot of media buzz and contribute to investors being Scared Witless (TM OldProf). Please check out last year’s post on this theme and remember how it played out. Here is the brief message: This is exactly what I said would be the theme of the week: Fluff or Fundamentals. If you have a list of stocks that you like, with appropriate price targets, you are happy to go shopping when the market provides the opportunity. It is a classic example of fundamental value stock analysis. If you have been following us with the Enhanced Yield approach – buying reasonable dividend stocks and selling short-term calls — your portfolio has hardly budged during the selling. You stand to collect next week as the call premiums wither. If you do not have a good reason for your stock ownership, you will be tempted to bail out at the wrong moment. As noted in past posts, I have been selling some holdings as price targets were reached. I have some cash, and I am looking for bargains. Specific Changes I want to update my commentary from the start of 2014. I still like the overall market prospects and the specific themes that I cited. Some of the names have changed. These have been profitable moves so far, but some adjustment may be warranted. Here is what I have done:

  • CAT – I have sold Caterpillar because the story has become too complicated and it hit my current value target. There are better cyclical plays.
  • NLY — I have sold NLY because it is not meeting my objective as a play on increased slope in the yield curve. The market may not be perceiving the company strategy. For whatever reason, it is trading with interest rates, and that is not what I want. I buying regional banks that fit the mold better.
  • CTSH – sold because it reached the price target.

These have all been profitable ideas, but I am moving on to better themes. That is implicit in a preview for the entire year, but it has changed so quickly that I wanted to provide an update. Time for dinner!

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3 comments

  • Al April 11, 2014  

    Happy birthday!

  • Trong April 12, 2014  

    Happy birthday, Jeff.
    How much longer do you think you’ll still be actively investing in stocks?
    I am 62, and I hope to do it at least another 20 years.
    By the way, your financial blog is one of the few intelligent & informative ones. So, thank you.

  • oldprof April 12, 2014  

    Thanks for the Birthday wishes. We had a great evening.
    Trong — thank you for the kind words and the good question. People are living longer and enjoying more retirement activities. It is important to start your analysis by thinking about risk, but many people unwisely choose “zero” as their answer. Including some stocks in your portfolio is the best tool for fighting inflation. I noticed in a recent interview that Prof. Robert Shiller (who recently turned 68) has a portfolio with over 50% stocks! This is despite the reading on his widely-cited CAPE ratio.
    An illustration only, of course, but it is something to think about.
    Jeff