Site icon PRACTICAL STOCK INVESTING

Thursday, March 12

Thursday had some of the hallmarks of the prior two days:  defensive groups were among the weakest, especially utilities and consumer staples; finance and technology were the strongest.    Healthcare was strong, though, acting against the pattern of  Tuesday and Wednesday.   Overall, medium-sized stocks did better than either very large or very small.

Other than Merck and Schering-Plough, big-name banks seemed to me to be the individual stars of the day.

 

Professional portfolio managers probably have several thoughts at this point:

*the combination of stock market declines and client withdrawals over the past six months has probably cut assets under management in half.  The resulting fall in management fees could cut equity division profits in 2009 by two-thirds (or more) vs 2008.  So it’s nice to see the markets going up for a change.

*this rally is at least three months too early, so it can’t last.  The big question is whether the market just drifts after it’s over or whether the sharp selling that has marked the past five months or so resumes.

*this rally shows, hoever, that given even a little encouragement, investors are willing to think bullish thoughts.  So there’s probably no percentage in maintaining a very defensive posture.  I should probably stick for now with high-quality names, but I should also shift within industry groups to stocks with somewhat more business cycle exposure.  If my industry composition is very defensive, I should become less defensive.  If I’m already tilted a bit toward aggressive sectors, I should stand pat and let my stock selection within industries do the work of preparing for the next up market for me.

NOTE:  I’m probably still having redemptions.  So I can do some of this work simply by shifting all of my selling toward the areas whose weighting I want to shrink.  If this isn’t fast enough, I’ve also got to sell more in defensive areas and buy in the more cyclical ones.

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