All dogs are
friendly till they bite you, so are equity markets. The Trump honeymoon has
lasted for over a year and returns have been handsome. But having actively
invested for over 28 years I know that good times don’t last forever and so is
the case with bad times. But over any ten year period stock markets have
rewarded investors with superior returns.
What has happened? 2018 January had a rousing start and
all our equity portfolios looked flush with profits. It was the continuation of
2017. But the onset of February has seen the sellers taking over the investing
game; the bears seemed to be in control.
Why did it happen?
Investors in January 2018 seemed to be in love with the benefits
bestowed on corporations. Owing to the new tax laws passed by the US Congress
which effectively cut the corporate tax rates from 35% to 21%, investors
welcomed the news by bidding up prices to new highs. In the short run tax cuts
are likely to boost the bottom lines of corporations. The first few trading
days of February saw the return of volatile markets, with brutal selling of
equities and a lack of buyers. Failure is always an orphan and no one would
step up to take responsibility for the sell-off of equities. Reasons could be
program trading and profit taking, inflation fears and interest rate hikes etc.
But it was a nasty but welcome reminder that no asset class grows to the moon.
Way forward? The Roman God Janus is usually
depicted with two faces, since he looks to the future as well as to the past.
Similarly we at Shri Advisors have a dual mandate, Capital Appreciation and
Capital Preservation. In good times we will take a risk-on approach to ensure
that our portfolios grow and in during volatile periods or during bear markets,
preserving capital becomes paramount. Hence periodically when equity markets
stall and sputter we will dial down the equity risk in our portfolio by
opportunistically selling risky assets whenever certain thresholds are met.
Neither greed nor fear dictates our asset mix. So in short if selling continues
in the equity markets expect a re-positioning of our portfolios to a less risky
asset stance, even if that means that we take losses on some newly initiated
positions. Disciplined investing based
on rules is our working methodology and we have found that works positively for
our Clients.
Benoit
Mandelbrot was a great mathematician of recent times and had singular
contributions in many disciplines. https://en.wikipedia.org/wiki/Benoit_Mandelbrot
Hence this Ending Quote … The techniques I developed for
studying turbulence, like weather, also apply to the stock market. … Benoit
Mandelbrot
