a day like today

Stocks are down today.  The ostensible reasons are trade war fears + the administration’s distinctly un-American decision to seize and imprison the children of asylum seekers at the border.

It’s not clear to me that–important as these issues may be for the long-term attractiveness of the US as an investment destination–they are the reasons for the market’s decline.  (Personally, I think the mid-term elections will give us the first true read on whether ordinary Americans approve of the UK/Japan-like road Washington has set the country on.)

But I don’t want to write about macroeconomics or about politics.  Instead, I want to call attention to the useful purpose that down days, or strings of down days, for that matter, serve for portfolio management.

There are two:

 

–portfolio realignment.  This is as much about psychology as anything else.   Typically during a selloff stars go down more than the market and clunkers underperform.  Because of this, clunkers that have been hiding in the dark recesses of the portfolio (we all have them) become more visible.  At the same time, stars that we’ve thinking we should buy but have looked too expensive are suddenly trading a bit cheaper.  The reality is probably that we should have made the switch months ago, but a down day gives us a chance to tell ourselves we’re better off by, say, 5% than if we’d made the switch yesterday.

 

–looking for anomalies–that is, clunkers that are going down (for me, this is typically a sign that things are worse than I’ve thought, and a sharp spur to action), or stars that are going up.   Netflix, for example, is up by about 1.4% as I’m writing this, even though it has been a monster stock this year.  I already own enough that I’m not going to do anything.  But if I had none (and were comfortable with such a high-flier) I’d be tempted to buy a little bit and hope to fill out the position on decline.

 

 

One response

  1. Pingback: What stocks to invest in = a day like today « PRACTICAL STOCK INVESTING | Stock Investing

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