Not only is the news full of dire business and economic news, stocks are going straight down, oil has already tanked, tech is plunging, and the list goes on. It’s scary, no doubt. But is it time to sell? Here are four reasons to sell right now – and they’re not what you may be thinking.
Markets price assets in real time, all the time. Whether those prices are fair or accurate, well, that’s what makes a market. Think of the casualties strewn on the market battle field: oil down -75%, tech down 15% or more, the median stock is down 30% (Bespoke). There are official negative interest rates in Japan and Switzerland and $7 trillion of bonds are trading at negative rates. Throw in an opaque rapidly slowing China and a strong dollar weakening US earnings. There’s even US recession talk. No wonder markets have jitters and now the shakes. The only winners are gold, utility companies, US treasuries, and German bonds.
Get ready / Fortify yourself
How can you possibly make money in these Chicken Little markets? Four methods typically work well, are time tested and involve selling. We know them well since they are built into Osbon Capital DNA. These four return enhancers are:
- Cut costs – Are you paying too much? Sell investments that charge you for things you don’t get. Like 1%+ investment management fees when the industry standard is 16 basis points. Like any commission costing more than $8 per trade regardless of amount or number of shares. Like unknowable markups and markdowns on bond transactions. It’s not quite ‘fraud’ as Bernie Sanders calls it since these things are legal. But the practice of charging for nothing is distasteful and expensive. It’s not obvious and we know where to look. It’s always a good time to review costs and expect more through a cost audit. That means it could be a good time to sell in favor of owning better assets.
- Suppress taxes – Use your losses. With ETFs (but not anything else) it’s easy to recognize losses through tax swaps, while maintaining your investment position, but you have to know what you’re doing. The IRS won’t let you deduct the loss if the two securities are ‘substantially alike’. SPY (the S&P 500) and VTI (all 3400 public companies in the United States) are unalike enough to pass the swap test. Over the short term – 31 days is all you need – SPY and VTI trade virtually identically. Your manager can’t do this with individual securities because there are no equivalents. Sell Google and buy Apple? Swap Facebook for Amazon? It just doesn’t work. But it does with ETFs. Offset gains or stockpile losses for future use and suppress your taxes.
- Cash flow – An easy but not obvious third step is to increase income, because the income is there if you look for it. Profits are at record levels worldwide and so is cash and profit margins. It may make sense to sell in favor of the higher-yielding assets available to you. A typical diversified Osbon Capital portfolio has a 3% cash flow yield.
- Diversify – Successful investors know that concentration creates wealth but diversification preserves it. And many investors primarily want preservation. Stay diversified is the fourth ‘sell’ step. You may be out of balance and need to sell down larger positions to buy up smaller positions to keep you in balance. In volatile markets it’s easy for a portfolio to drift significantly from the risk level that’s right for you. If your portfolio is truly diversified it will have declined a lot less than the averages. That’s diversification at work on the both the security level and the portfolio level.
Notice that we did not mention the most common – and most destructive – selling: trying to time the swings in the markets. Watch out for this emotionally charged and often repeated compulsion. Investors are notorious for selling at bottoms only to buy back in at higher levels. These principles and more are written down for you at Osbon Capital – ask us for a copy. Expect no less and settle for no less for your money.
John Osbon – email@example.com
This communication may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.”
“Historical performance is not indicative of future results. The investment return will fluctuate with market conditions.
Past performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor.
Investment strategies, philosophies, allocations and holdings are subject to change without prior notice.
This communication is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice.
While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information.
Adviser does not endorse the statements, services or performance of any third-party vendor.
Unless stated otherwise, any mention of specific securities or investments is for hypothetical and illustrative purposes only. Adviser’s clients may or may not hold the securities discussed in their portfolios. Adviser makes no representations that any of the securities discussed have been or will be profitable.
Any IPO alerts are purely informational and should not be construed as recommendations to invest.
Adviser is not licensed to provide and does not provide legal, tax or accounting advice to clients. Advice of qualified counsel or accountant should be sought to address any specific situation requiring assistance from such licensed individuals.
Any case studies or hypothetical client profiles are for demonstration purposes only. They illustrate the breadth and depth of the many clients we represent at various life stages. Any similarities to actual Adviser’s clients past or present are strictly coincidental. Individual advice and results will vary based on each client’s circumstances, objectives and prevailing economic conditions.