My Portfolio is way down. Now what?

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Greetings Fools,

I am almost certain I am not the only one that is getting depressed as hell, looking at his/her investment portfolio. Made up of only Motley Fool recommendations, it’s been down close to 40% since last fall.
I know the Fool philosophy is to stay the course as no one can predict the tops and the bottoms, but the prospect of raised inflation which brings along a slew of other raises (mortgage rates, for starters) scare the daylight out of me. My whole family is going through some financial distress at the time and I would hate to have to start cashing in on some of my positions that are down so much.
Any words of wisdom as to whether we have hit the absolute bottom? Come on Fools, cheer me up a bit.

Foolishly Yours,
Ed

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Ed,

You’re looking for some good news? Well, for starters, you live in Canada, not the US. For as repressive as Trudeau is, things here are worse. Also, I’m guessing that the costs of energy aren’t as as high in Canada as the US.

As what what to do about your portfolio, no general advice will apply to all situations. But the
“rule of thumb” is this: “Sell what should be sold before you find yourself in the situation of having to sell (at worse prices) what you can.”

How far down will prices drop? That’s very easy to predict. They will fall by as much as it takes to deflate the asset bubbles that were created by the easy money polices of the central banksters, and then a tad more, because markets always overcorrect. In terms of the SP500, that means another 700 to 1,000 points down from where we are now.

So, you’ve got a bunch of choices. Sit tight as prices decline further and hope they will recover, eventually, maybe. Sell some now and vow that in the future you will always trail a stop. Wm O’Neil suggest (-8%) is a good cut-loss point, because if the position is working by then, why continue to hope? Third, start selling short and start off-setting your losses with some gains. Most “investors” aren’t comfortable selling short. But an easy alternative is inverse ETFs.

Lastly, no matter how grim things might seem, we in the US --and you in Canada-- live in very wealthy, very peaceful countries where we can drink the water, the power is still on, there’s food in the stores, and no one is bombing us. Much of the world doesn’t have those blessings.

Arindam

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It is a very scary time. All I can say is that inflation is short-term and you should wait to see how your companies handle it before giving up on their potential for long-term (3-5 years or longer) business growth.

Rather than looking at the current market as something to be endured, I prefer to look at it as an opportunity. If you have a Buy Watch List of companies in which you would like to be invested or to add to your position, the market is presenting you with some great discount opportunities that can fuel future growth so that when you come out the other side, your portfolio has the chance to soar.

Fuskie
Who notes whether we have hit bottom or not really isn’t important when your investment horizon is 3-5 years (or longer)…

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“All I can say is that inflation is short-term…”

Sir,

You can “say” whatever you want to say, because free speech is still a protected right in this country. But you cannot PROVE that the high --and increasing-- levels of inflation (food, energy, medical, services, tuition are --or will-- be short-term. More likely, due to decades of the Fed’s easy money policies, the inflation they caused will take a decade or so to unwind. That’s isn’t “short term”.

Meanwhile, most of the no-earnings companies that TMF likes to tout will continue to decline in price and they will fail. Can’t happen? Won’t happen? We’ve seen this movie before in the Dot Com era. In fact, here’s a good article why hoping for a turnaround in companies whose stock should never have been bought the first place is a fool’s errand. https://www.zerohedge.com/news/2022-06-09/shorting-crazy-cat…

As to your second point, Yes, if one has the cash and can take on the risks of bottom fishing, some buying should be done. (In recent weeks I’ve added a lot of new positions and/or added to exiting ones.) That isn’t the situation of the opening poster. He’s down (-40%) --due to very bad “investment” advice-- and he might need to raise cash.

Arindam

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Arindam,

I am sure that there is a first time for everything, but in the history of mankind, inflation has always been short-term in the context of long-term (3-5 years or longer) buy-and-hold investing.

Fuskie
Who notes nobody should be investing money they need in the next 3-5 years (5-8 years if retired) specifically to protect themselves from market downturns such as these…

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no pun intended?

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Fuskie,

I’d be happy to debate the matter with you of how long our present levels of inflation will to. But both of us need to cite data that can be independently verified instead of falling back on our respective political beliefs. But that debate doesn’t help the opening poster, who has a real problem he’s trying to solve, namely, he spent money he shouldn’t have put at risk and is now panicked about how to correct that mistake. Frankly, I’d be scared, too, had I put the whole of my portfolio into speculative-grade stocks instead of a more prudent, 10% max.

You advocate a 3-5 year let’s-see-what-happens investing program. That takes more money and patience than most investors have. I take an opposite tactic. If a stock position doesn’t work in 3-5 minutes, it needs to be pulled or at least trailed with a very tight, 1%-2% stop. OTOH, the average holding-period on my bonds is decades long, so long, I won’t live to see most of those bonds mature. Thus, this motto. “Bonds are for owning. Stocks are for trading.”

Right now, with interest-rates on the rise, my fixed-income holdings are being marked down. That’s to be expected, and it has to be tolerated. But there’s a huge diff between price reversals and permanent capital impairment. As long as my bonds are “performing”, I don’t worry. With stocks, price is everything, because stocks never mature. What matters with stocks --and what drives their price-- are two things: ‘earnings’, and ‘sentiment’. The stocks TMF recommends typically have clean balance sheets, but aren’t profitable, nor are they forecast to be profitable in the next three years. (I’ve run the fundamentals on dozens of TMF’s recommendations and tracked their subsequent decline.)

Ed doesn’t have three to five years to wait. He needs to be making money on his investments NOW, and that isn’t going to happen with the stocks he’s holding, because we’re looking at a decade or two of high domestic inflation. Welcome to The Great Reset. (IMHO, 'natch.)

Arindam

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You can debate the cause and duration of inflation at length.

The real question is how do you invest in this environment? Hold cash? Buy bonds?

I think we hope to spot the quality companies that can continue to grow earnings in spite of inflation and possible recession. They are the ones that can pass cost increases on to customers.

2Q earnings start next month. People are expecting lots of earnings misses and reduced earnings estimates.

We will be watching for the exceptions. In a bear market will they tank on good news?

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“The real question is how do you invest in this environment?”

Called my stock broker this morning and asked him what I should be buying.

He replied, “Canned good and ammo.”

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It is not a question of politics, it is a question of economic history and not letting fear rule the roost. You have made it clear you are not a fan of TMF’s long-term (3-5 years or longer) investing Foolosophy, and that’s fine. You do you. I have been successfully investing Foolishly for 25 years and believe strongly in focusing on a company’s business performance rather than its market performance. History has shown that inflation is temporary. History has shown that bear market are temporary. The bad times always seem darker in the moment, and good times were never as fond as our memories. This is just human nature.

As for Ed needing money now, as I said before, any cash needed in the next 3-5 years (5-8 if retired) should not be invested in the market to avoid being pressured to sell for a loss in a down market.

Fuskie
Who once heard someone say that pessimism is a self-fulfilling prophecy…

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Hi Ed,

If you are a Stock Advisor member, I’d say head over to those discussion boards and read Huibs words of wisdom.

Great companies adjust to inflation. They adjust to changes in customer demands. What they don’t like is uncertainty. If a company can’t adjust or has too much debt and too little cash, well that creates opportunities for better management teams.

When investors stop selling we will hit bottom. The stock market is a leading indicators, meaning it will recover before the economy does.

I try not to look. Or just that kind of sideways glance that tells you whether its okay to look or not. It isn’t.

Vicki

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“History has shown that inflation is temporary. History has shown that bear market are temporary.”

Fuskie,

If those two statements are true, then so are their opposites. The good times always end, and then the hard times return.

As for you’re being anyone to give anyone else advice how to invest, do you want me to repeat the exercise I ran a couple weeks ago in which I showed just how far this year you’ve let prices move against most of your holdings?

Yes? OK, Then here’s a clear example of What Not To Do. One of your chief holdings is Disney. Today, it closed up a piddly $0.06 cents compared to the SP500’s gain of 0.22%, the Naz’s 1.43%, and the R2k’s 0.98%. The closing price was 94.34, right? which is down by roughly (-52%) from its high just over a year ago of 197.16, right?

So, Yes. You eat your own cooking. You tell investors that “losses have to be endured to obtain even bigger gains”. But is that really true? Why not harvest profits as stocks hit their highs and then buy 'em back later when they’re trading at more favorable prices?

Yes, that’s just another way of doing things, and it cannot be argued that either is better. But it can be pointed out that either method might not be a good match for particular investors. Me? I hate for prices to move against me or to leave money of the table. I want to be in close to a bottom and out close to a top, a style of investing well described in Ben Grahams’s classic intro to value investing, The Intelligent Investor.

25 Years? That’s so cute. I bought my first stock when I was ten, doubled my money, and thought investing was easy. That was 68 years ago, which means I’ve been investing a long, long time and still don’t know half of what I should, because this investing/trading stuff isn’t easy. Always, your counterparty to every trade is meaner, faster, better capitalized, and better informed. Plus, the investing/trading landscape is constantly changing.

If you’re now saying of Ed and his quandary that he shouldn’t have bought the stocks he did, then why didn’t you warn him away from the getgo? That’s exactly why I’m not a fan of TMF and its methods. You get newbies into situations they should have been warned away from, which is the endless sting of no-earnings companies that TMF favors. Yeah, maybe, one of these these days they’ll turn a profit. But meanwhile, the losses mount up, causing both financial and emotional damage to them who jumped into the stock way too early and then also failed to trail a stop.

Arindam

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Here are reasons why inflation won’t be “temporary.”

1) The U.S. has $31 trillion in debt.

2) The U.S. is already spending $305 billion in interest payments every year with rates at ZERO.

3) Every 1% increase in rates by the Fed means U.S. debt payments rising another $300 billion.

4) The Fed wants to raise rates to 3%… which would mean the U.S. spending nearly $1 trillion in interest payments… without reducing its debt by a CENT!

5) This would mean the U.S. spending 25% of its current budget on interest payments alone… while its debt pile continues to rise by trillions per year.

Put simply, the Fed cannot raise rates anywhere near the levels it hopes without triggering a debt crisis that would make 2008 look like a joke. So, inflation is going to rage for years to come. Sure it might come down a bit in the data… but it’s not disappearing anytime soon. And the markets know it.

https://www.zerohedge.com/news/2022-06-14/two-charts-every-s…

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Here are reasons why inflation won’t be “temporary.”

1) The U.S. has $31 trillion in debt.

It is much worse than that. There is much more gone than that. And that does not include obligations such as Social Security, Medicare, and Medicaid.

https://hudmissingmoney.solari.com/the-real-game-of-missing-…

https://missingmoney.solari.com/missing-money-update-may-202…

https://missingmoney.solari.com/missing-money-2021-update/

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If those two statements are true, then so are their opposites. The good times always end, and then the hard times return.

That is true. Bull runs don’t last forever and there’s always going to be another correction and probably even a recession.

Disney is actually not a chief holding of mine, though it is a company I enjoy discussing so I can see how it might be confusing.

Why not harvest profits as stocks hit their highs and then buy 'em back later when they’re trading at more favorable prices?

That is called market timing and it almost never works because you cannot reliably predict when you’re at the next bottom. If you’re so confident that they’ll be trading at a more favorable price later on, the more offensive approach is to add to positions when they’re down and accumulate more shares to ride the rise up.

But, staying true to my Foolosophy, only do so if you have strong conviction in the company’s potential for long-term (3-5 years or longer) business growth.

Going back to Ed, TMF has always held that Fools should not invest money they would need in the next 3-5 years (5-8 years if living off retirement income), though different Fools will adjust the time frame based on their own personal views. It is a message I have shared frequently throughout the TMF Community, and one that has been expressed by TMF analysts across the premium services, in published articles and Motley Fool Live, as expressed in this recently updated edition of an article that dates back decades to the old Fool School:

https://www.fool.com/investing/how-to-invest/saving-vs-inves…

Fuskie
Who technically became an investor shortly after he was born and held that position for the first 16 years of his life until it was bought out for cash, not that it is a contest…

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Mr. ED

If you don’t know how to read charts, I suggest you study the charts that tell you when to get in and when to get out to help protect your ASSets.

https://www.tradingview.com/chart/pLXQT71J/?symbol=AMEX%3ASP…

when you see SPY drop below the 200 ema start to keep an eye on your portfolios.

https://www.barchart.com/etfs-funds/quotes/SPY/interactive-c… place the mouse on 6/8/22 as a sell signal if you can see this chart.

https://www.barchart.com/stocks/quotes/$SPX/interactive-char… - ditto

something to ponder.

Quillnpenn - a poor church mouse scratching for a living as a Swing Trader for over 45 years.
------------ Vision - Multi-Millionaire…Goal - earn 1.3% - 2.5% compounded Daily per the 2.5 percent theory.

Time to go and play ONLINE Roulette and Baccarat to wind down and earn about $ 100.00 every 17 minutes. Or $400.00 an hour.

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“That is called market timing, and it almost never works, because you cannot reliably predict when you’re at the next bottom. If you’re so confident that they’ll be trading at a more favorable price later on, the more offensive --the better word would be 'aggressive-- approach is to add to positions when they’re down and accumulate more shares to ride the rise up.”

Fuskie,

Much thanks for your levelheaded reply.

Yes, “market timing” is a controversial topic, but only because it is so misunderstood. Unless one is buying his/her stocks on the basis of the output of the equivalent of a random number generator, then he/she is market timing. A very obvious example is the monthly picks that Tom/Dave make. Implicitly, they are saying, “Based on our research, NOW is a good time to buy such and such.” That is market timing. As for when to get out, they recommend a 3-5 year holding-period. That’s more market timing. Where you and I differ is that you use a calendar to make your market timing decisions, whereas I use a price chart, just as Ben Graham advocates in his intro to value investing, The Intelligent Investor.

The bottom line is this. You’re happy with your approach to investing, and you advocate it for others. I think your approach is risky and reckless, and I’ve found other ways to pull more money out of markets than I bring to them that better suit my means, needs, interests, and goals. But both of us should agree that each investor has to find his or her own path.

Arindam

Caminante, no hay camino. Se hace camino al andar. (Roughly, “There are no roads but by walking.”)

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