What do you do when you have runaway winning stocks? You sell them, silly. Especially if the valuations are out of control, or out of this world. Those stocks might live in the land of AI – artificial intelligence. The share prices might be artificially inflated. The U.S. stock market is enjoying a bull run led mostly by 7 stocks. So, this demonstrates that buying the market is either a really good idea, or a very bad idea. What if the market has it wrong? Maybe it’s an artificially-created sugar high. Or maybe Nividia does have a 5-year monopoly with its AI chips? Maybe AI is a game changer? I don’t know. All I know is that we’re selling our winners. Or at least, we’re chipping away, banking some profits.
Selling some shares is not market timing. Let’s be clear about that. In fact, it can be one of the most common and useful portfolio practices. It’s called rebalancing. If you bought Microsoft at a 3% portfolio weighting and it becomes 8% of your portfolio weight (thanks to incredible gains) you might sell some shares to bring the weighting back in line. You might only bring it back to 5% as you have great confidence in the company, long term. And you might let your winners run. It’s a personal decision.
Here’s a Tweet that sums up the S&P 500 rally …
The Kobeisi Letter also tweeted this stock market context …
1. S&P 500 up 3% on the week, best week since March
2. S&P 500 up 5 straight weeks, best winning streak since November 2021
3. S&P 500 now up 26% from bear market low
4. Nasdaq up 4% on the week, best week since March
5. Nasdaq up 8 weeks in a row, best winning streak since 2019
6. Both Nasdaq and S&P 500 up 6 days in a row through Thursday
7. Dow Jones up 2% for the week, 3rd positive week in a row
8. S&P 500 and Nasdaq at highest since April 2022.
Unfortunately, Canadian stocks are not going along for the ride. The TSX 60 is down by over 2% over the last month. That said, we are up almost 5% in 2023. And we’re up nicely over the last 3 years, 5 years, 10 years etc. = stick to your investment plan.
On valuation, I’m certainly glad that we own the “cheap” stocks of the Super 7, by way of Apple and Microsoft. Ha …
Here’s what a trimmer looks like and ‘sounds like’ …
We own Microsoft and a few other outrageous winners in my wife’s RRSP account. I own Apple. There has been some modest rebalancing over the last 2 years as my wife is in the retirement risk zone. I set another limit sale order for Microsoft last week. If someone wants to pay us more for less earnings per share, step right up. We’ll move the proceeds to the bond ETF and hopefully earn enough to beat inflation thanks to the decent rates of the day.
The world runs on chips
I also trimmed Nike over the last 2 years as the valuation made little sense. Though I still love that brand and company, and holding. The gains were incredible. As they say, you can’t lose when you sell at an incredible gain.
Once again, nothing outrageous here – simple rebalancing. And that rebalancing can happen at the stock market level, as U.S. stocks are sold, and proceeds moved to international or Canadian ETFs (where’s there’s greater current earnings). Those moves are ongoing in the asset allocation ETFs. The portfolio managers will sell the winning markets and move the proceeds to the lesser performing markets, or bonds, or both.
You would execute the same rebalancing if you managed your own ETF portfolio.
The Sunday Reads
At My Own Advisor, money is more than just math. From that post …
I’ve come to the conclusion that instead of debating others on these subjects, after I got personally attacked online months ago, that’s it’s perfectly rational to be unrational when it comes to financial decisions as long as:
- you understand the pros and cons of your decision, and far more importantly,
- you genuinely feel you’re making the best decision for you.
And in the mix of weekend reads offered by Mark is the illusion of choice in the consumer goods market from Dividend Growth Investor.
I am a big fan of owning the wallets of the consumer. And consumer staples are one of the most useful sectors for retirees, right up there with healthcare.
Can they live off of the dividends?
At Tawcan Bob wonders when they might have enough to live off of the dividends and part time work. That’s a very interesting post and evaluation. Bob touches on the fact that they might create additional income by selling shares.
Don’t sell yourself short by living off of the dividends.
I am a big fan of the semi-retirement plan, but we must recognize the risks. Employment income is no guarantee, and it’s essentially impossible to get disability insurance when you are self-employed.
Also, I think parents will under-estimate the costs of sending kids off to school (plus other cost for the little ones and big ones).
Tons of reads and podcasts
Right on cue, Banker on Wheels kicks off the weekend reads with rebalancing frequency from Vanguard. Another robust post from Banker.
Kyle Prevost made sense of the markets in a week that saw the Fed skip on the rate hike cycle. They say they might hike rates two more times, but the markets don’t believe them. If they were going to continue hiking, why skip a beat? From that post …
That’s all from me for a few weeks. I am happy to be passing the baton to the ever-capable and classy Dale Roberts, while I get some R&R.
Yes, I’m back on MoneySense for two weeks. But “classy”? I’m gonna have to work harder on my “image”. 😉 Thanks Kyle. Enjoy your vacation time.
Retirement blind spots
Matthew is back with his May portfolio update at All About The Dividends .
Congrats Matthew – keep on keepin’ on.
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