RSSMoving Forward: Tips For Rebuilding Your Portfolio
By Jim Farrish | October 10, 2008 | 4:55 PM | 0 Comments
The challenge as an investor living through the last four weeks is to look forward. It is even harder if you have followed the tune of, don't worry you are in this for the long term. That has been my favorite saying from advisors and money managers like John Boggle. Yes, asset allocation models work over the long term. Yes, the S&P 500 ($SPX) did recover its losses from 2000-02, only to give them back over the last 12 months. In fact the 10 year average rate of return on the S&P 500 index now stands just under 2% per annum. Maybe long term is longer than 10 years. I will have to do some research on that and get back to you.
Sorry for the tangent. My point was to look forward not backwards. See how hard that is. The bounce today off the intraday lows of 840 on the S&P 500 shows some interest in buying stocks. I am not talking about a bottom just interest in picking up stocks at these levels. Will this lead to a rally next week? Good question. The answer lies in the G7 meeting this weekend. If the guarantee comes for banks and depositors. In addition the need to free up the commercial paper market. Plenty of talk around both of these issues. They will be key points heading into next week.
How do we build a portfolio looking forward. Well my assumption first of all is you are primarily in cash at this point giving you plenty of room to ladder into longer term positions. Energy is one of the first sector I would look into with the conditions here extremely oversold. The value will be realized as prices on crude return to normal. Normal being taking out the big swings up and down and some sanity to trading in the sector.
Financials are the second area to dig. The outcome of all this money flying around will lead to finding the winners. The trashing of the regional banks is the first place to dig. The insurance companies are another piece of the financials that have been trashed as well. Balance sheet looking here as well as the credit rating are important along with some patience. This will take some time, but I am looking through the remains.
Basic materials is a sector I have been short for a several weeks, but it is starting to look attractive at this point. There are some very attractive valuations on a forward looking basis. As the negative tone subsides there is value.
Last, but not least is the small cap stocks. The bounce off the lows today and closing higher by 4% gives plenty of reason to think this sector is oversold. I will be watching early next week for some follow through on this move.
VIX ($VIX) could have climaxed today at 75. That will give some indication next week how this plays out short term. From a longer term perspective there is value. Building positions versus trying to time the bottom is the best approach looking forward.
I am not sounding the all clear sign, just saying there are opportunity. Remain patient, focused and most of all disciplined. Relax and enjoy your weekend, you deserve it.
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