Monday, August 14, 2017

Stock Market Investing Strategies In An Aging Bull Market

The beta market that ensued following the March 2009 bottom in the stock market was great for me.  As stocks (and the market) recovered systematically, I was profiting nicely from just about all of my stock investments.  Those were great times that lasted several years.  If you had cash to work with, you probably made out quite nicely yourself.  After all, stock picking prowess was almost not necessary.  Having placed your money back then in a low-cost index fund that tracks the S & P would have given you incredible returns.  How incredible?  Since the market bottom, the S & P 500's total return (includes reinvested dividends) has more than quadrupled, gaining 313%.

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If you were hurt by the Great Recession, and decided to sit on the sidelines out of fear (or lack of disposable cash to invest with), today you probably wish you had been smarter.  Maybe you got back in eventually only to find that the beta market had transformed into an alpha market? Maybe your stock or ETF/mutual fund picking skills have made you some money, and now with a saturated market, you're wondering what to do?  You're no longer able to find equities with enough "margin of safety."  You're no longer able to find stocks priced below their "intrinsic value."  Heck, even growth stocks look expensive and overbought.  Should you exit the market and wait for the correction to happen?

I have some logical strategies that you can use to invest even in an aging bull market.

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If you're in your 20s, 30s, and early 40s, you have considerable time left before you retire.  Staying in the market, no matter what the market does this year or next, is what you need to do.  You'll want to stay diversified, own several low-cost index funds (ETF or part of the mutual fund family).  For example, you could continue to contribute to your Target Date fund every month and dollar-cost-average, buying more shares as the market tanks.

Or if you like to pick stocks, you could ring the cash register, take some gains, and keep a portfolio with your core positions still intact.  Buy shares of your remaining holdings on big pullbacks and lower your cost basis.  The key is not to panic sell and liquidate your positions at huge losses.  Only do this if the economic landscape causing the market's correction directly impacts one or several of your key holdings.  For example, when the market crashed, causing the Great Recession, banks were hit the hardest (for obvious reasons).

If you trade bonds, you risk having to sell at lower prices if interest rates rise (so far the Fed has kept rates in check).  Sticking with bonds with short maturities is your best move.  By the way, the same will be true for CD ladder lovers (3-month, 6-month, 9-month, 12-month, 15-month will work best as rates rise).

The main point for long term investors is to stay in the market.  Make adjustments, like raising cash, getting out of long-term maturity bonds or CDs, etc., but don't completely exit.  Timing the market doesn't work!


If you're supposed to be retiring within the next ten years, and you've been in the market since we reached the bottom in March of 2009, you should be on alert.  You can't still be possibly swinging for the fences, trying to find growth plays in this market.  Don't let the FANG (Facebook, Amazon, Netflix, and Google or Alphabet) stocks lure you in.  This is the wrong time to be starting a position in these stocks no matter what anyone says.

You definitely should be ringing the register and cashing out a substantial portion of your portfolio.  Now this doesn't mean get out of the market completely.  Just raise cash to give yourself peace of mind.  You can even swap out your growth plays for some value ones that have underperformed for good reason.  Case in point: Ford (F).  It's a horrible stock that has severely underperformed the S & P now going on several years. has a great dividend, most of the sellers have left it (hopefully) and the company has plenty of cash to stay alive if another recession were to happen.  Dick's Sporting Goods (DKS) has underperformed all year.  Technically it looks like it's going to break out.  Barron's gave it the thumbs up this past weekend and claimed it will not be a victim of least not in the next two to three years.

In essence, you want to find stocks that are of companies not in jeopardy of going out of business, with plenty of cash, and that have gotten beat up this year.  In other words, contrarian plays.  Buy into these stocks slowly, buying more blocks of shares if they pull back.  Keep your head, remember that these stocks are already at their floors or close to reaching their bottoms, so the downside (if a correction happens) will be less dramatic than stocks on 52-week highs.


Okay, it's not a question of IF but WHEN the market corrects, you'll want to be in the right strategic place to ride it out and profit when the next bull market begins.  No one knows how long this will take so timing the market is a foolish proposition.  Stock market success is about buying low, when everyone else is afraid to take a dip in the water, and selling high, when everyone is in the water and the pool is overcrowded.

Thanks for reading!  Disclosure: I own shares of Ford (F).  I don't own shares of DKS, but will!   

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