Four Steps to 'Bulletproof' Your Portfolio

 
The stock market has gotten a little jumpy of late…
 
In the last week of March, the S&P 500 Index moved more than 2% for three consecutive days – the first time that's happened in two and a half years.
 
Meanwhile, the CBOE Volatility Index (or "VIX"), known as Wall Street's "fear gauge," has traded at an average of nearly 18 this year – around a 60% increase over last year's average of 11… and a big jump that reflects a lot more uncertainty in the market.
 
We've had smooth sailing for so long, it's a good time to review some basics about how to think about volatility.
 
So let's start with a question: What is the most important determinant of your lifetime success as an investor?
 
It doesn't have much to do with the usual things people talk about.
 
It's not about being in the right funds or the right asset classes. It's not even about being in the right stocks.
 
Instead, it comes down to your own behavior…
 
Let's say you owned shares of consumer-electronics titan Apple (AAPL) 10 years ago.
 
If you put $10,000 in Apple back then, you'd have about $94,000 today. That's almost a 10-bagger. You didn't have to worry about Fed moves, the economy, the dollar, etc. You just had to own Apple… and go fishing.
 
But it wouldn't have done you much good to buy Apple in January 2008 for $25… only to get scared out for a 25% loss in March 2008. You had to hold on.
 
Even if you did hold on, you would've looked like a dummy by March 2009. At that point, with the stock at $12 per share, you'd be sitting on a 52% loss.
 
Even if you held it and doubled your money in 2011 when the stock hit $50 per share, selling would have been a huge mistake.
 
Keep in mind that Apple is about $165 per share today…
 
So even if you happened to own one of the best-performing stocks of the past decade, you can see all the ways you could've screwed it up.
 
You can also see how this applies no matter what you invest in. Even if you have your money in a boring old index fund, it doesn't mean you're immune to making the same mistakes.
 
You could panic and sell near a bottom, or stop investing because the market has done poorly and buy back in near a top.
 
Well, if investing were easy, everyone would be rich.
 
But you can avoid making those common mistakes…
 
Nick Murray, a retired investment advisor who started out in 1967, is also the author of a couple of wise books on investing.
 
Murray preaches the idea that success has more to do with how you behave than which funds or stocks you own. Success is more about sticking to a plan and focusing on principles that work.
 
I recently reread his book Behavioral Investment Counseling, which is for advisers. But some of the ideas he writes about can help individual investors change their own behavior, too. Today, let's look at four of these concepts…
 
1. We can't know exactly how things will turn out all right… We just know that they will turn out all right.
Murray likes to say that you can't be a good investor if you're afraid of the future. You have to believe that if you follow time-tested principles, you'll be OK.
 
In our high-end equity research service, we aim to buy undervalued stocks that have strong financial conditions and are managed by people with skin in the game. It doesn't mean every stock pick works. And we don't know when they'll work. But we believe that if we follow our principles, our portfolio will do much better than our neighbors' over time.
 
2. Stop looking at your portfolio every day.
This is simple, but plenty of research shows that the more people look at their portfolios, the worse their returns. This is probably because it makes them more likely to ditch something that has performed poorly or jump on something that looks like it's moving.
 
If you look at your stocks several times a day, first, try to look only once a day – after the close. Then try to make it once a week. See how this shifts your outlook on price changes.
 
3. Never own so much of any one thing that it could kill you if it goes south.
I remember years ago, one reader sent me his portfolio. I cringed. It was full of gold-mining stocks – way too much in "one thing."
 
As Murray memorably puts it: "The fewer ideas in your portfolio, the fewer bullets it will take to kill you. One idea: one bullet."
 
4. Invest for total return, not yield.
I see some investors – particularly older investors – focus on stocks that pay generous dividends. This is a mistake. The focus should be on total return (capital gains plus dividends), not yield (dividends only).
 
Murray says that a focus on dividends is like having a well, but only drawing out water that comes from snowfall and not rainwater. "Rainfall, snowfall: It's all water," he writes. "As long as you draw less water than what's coming in, you'll be fine."
 
In short, if you're doing the right things, you have no reason to fear volatility, or even a bear market. Just sit tight and stick to your plan.
 
Regards,
 
Chris Mayer
 
Editor's note: Chris has spent three years and $138,545 analyzing companies that could have turned every $1,000 invested into $100,000. Finally, he developed a breakthrough stock-picking method… And he's convinced it's your best chance to make 10-to-1 from a single stock over time in today's market. Click here to learn more.

Source: DailyWealth

Here's Why We Haven't Seen the Top in Stocks

 
When times get tough, turn to a professional.
 
You go see the doctor when you're sick. You talk to an attorney if you've got a legal problem. And you set an appointment with your accountant when tax season rolls around.
 
Professionals have the answers… most of the time. You can't always count on them when it comes to the markets, though.
 
In the world of finance, you can't always trust the pros.
 
This year, wild markets have spooked the investment pros. Based on one measure, they recently hit their most bearish level for stocks since early 2016.
 
The pros are worried. But that's a good thing. It tells me that stocks haven't hit their ultimate peak just yet.
 
Let me explain…
 
We can't blame the pros. It's not their fault.
 
Investment managers tend to run in the same circles. They bounce ideas off similar minds and arrive at similar conclusions. It's called "groupthink," and it's hard to avoid.
 
Self-preservation can also cloud even the best investment minds. When markets get scary, it's easier to pull out of stocks than to explain why you're the only guy still buying.
 
So when investment managers get bearish together, it's usually a good sign for stocks. And last month, one measure showed that investment managers are at their most bearish since 2016.
 
We can see it thanks to the National Association of Active Investment Managers (NAAIM). Specifically, the NAAIM Exposure Index…
 
This is a weekly survey of hedge-fund and mutual-fund managers. The survey asks what percentage of managers' portfolios are in stocks. A zero means they don't own stocks at all. A 100 means they're fully invested. A score higher than 100 means they're fully invested and then some – they're buying with leverage.
 
This survey showed that investment managers were record bullish in December. But things have changed. The NAAIM Exposure Index fell to less than 50 last month… the lowest level we've seen since early 2016. Take a look…
 
We've seen a major decline in sentiment from investment managers in recent months… They moved from fully invested to just 50% in stocks in March.
 
The Exposure Index is up to nearly 80 since that low. But March's low reading showed investment pros were the most pessimistic we've seen since February 2016.
 
It's no surprise that the markets have spooked the investment pros. Volatility is back. And we saw our first correction in years in February. Stocks have been bouncing around since then.
 
It's tough out there. But March's fall in optimism makes me excited. It tells me we haven't seen the top in stocks yet.
 
We'll know it's a top when the investment pros are excited to see the market fall. You should be scared when they unanimously view a decline as a good thing… as a buying opportunity.
 
That hasn't been the case this year. Stocks fell, and volatility rose… and the investment pros pulled out of the market. That's a clear sign that stocks haven't topped yet.
 
Importantly, the long-term trend is still up. Until that changes, the smart bet is to take the recent fall – and the fear from investment pros – as a buying opportunity. Stay long.
 
Good investing,
 
Brett Eversole
 

Source: DailyWealth

Financial Disasters Don't Repeat, But They Rhyme

 
"I'm never going to make that foolish mistake my parents made!" you said.
 
And I said.
 
And everyone else said.
 
Experience counts…
 
Once you touch that hot stove yourself, you know you will never touch it again. And when you see family members make a life-changing mistake, you learn that you don't want to go through that yourself.
 
The problem is, we are fooled by experience…
 
We put too much weight on what we have actually been through.
 
The same thing happens in the financial markets…
 
Many young adults today saw their parents get crushed in the housing bust a decade ago. They saw them end up-upside down on their mortgages, and they swore they would never end up in that position.
 
But young adults are making this borrowing mistake in other areas. And they don't even realize it…
 
"Americans' love of pricey pickups and sport utility vehicles is stretching their wallets," Bloomberg news reported last week.
 
Who needs a $70,000 pickup truck? I have no idea.
 
But a Ram "Big Horn" truck can set you back $70,000 or more. For a pickup truck!
 
Guess what… According to the Bloomberg article, the Ram truck brand has an average loan term these days of 73 months. 73 months!!!
 
The article says that two out of three vehicles sold in the U.S. these days are "light trucks" – a category that includes SUVs and most pickup trucks.
 
With a six-year loan term, it wouldn't surprise me at all if a number of these loans end up in financial disaster like mortgages a decade ago… where the borrower defaults on an asset that they are upside-down on.
 
The student-loan market is in the same boat…
 
In 2009, total student-loan debt was about $771 billion – a huge number! Or so I thought…
 
By October last year, that number had soared to around $1.5 trillion. It nearly doubled!
 
Student-loan debt is another financial disaster in the making. You can easily make a case that we could see hundreds of billions of dollars in defaults.
 
It's not just financial disasters… You can make mistakes on the upside, too…
 
Young people bought up cryptocurrencies like bitcoin with big dreams. But in late 2017, it turned into bubble, like many others in history.
 
I love learning about financial history. I love finding parallels between today and a time in the past.
 
But one clear lesson from history is this: It never happens the exactly the same way the next time around.
 
That's why it's easy to be fooled… to think that "this time is different."
 
Financial disasters and bubbles don't repeat… but they certainly rhyme. Don't you forget it!
 
Good investing,
 
Steve
 

Source: DailyWealth