Don’t Fall in Love with your Portfolio | Investors Edge

By John Stewart, chief investment officer at Farmers Trust Co.

Week in Review:  Growth Strikes Back!

CANFIELD, Ohio — After a really rough start to the year, Growth stocks, you know, the big Tech names that everyone loves, or in some cases loves to hate – Apple, Amazon, Tesla and Google among others – have come roaring back to life in the past couple of weeks.

The NASDAQ market index that is made up of many of these stocks fell more than 20% from its November highs to its March lows.

My, how things have changed. Since March 14, Apple is up nearly 20%, Amazon is up 23% and Tesla is up a whopping 45%! These are just a few examples; there are certainly many others.

So is this just the beginning of another leg higher in the bull market, or simply a temporary rally before things take another turn for the worse?

We believe this could be a good opportunity to rebalance portfolios if you are overweight risk. In other words, this is an opportunity to lighten up on some of the more risky stocks in your portfolio. The reason being that we see the second quarter being particularly challenging as rising input costs and rising interest rates are likely to meet with weakening consumer demand to produce lower corporate earnings.  Defensive sectors like Consumer Staples and Utilities should be a good place to hide out for a while.

Featured Insight:  Don’t Fall in Love with your Portfolio

Oxytocin is a hormone in the brain that creates attachment. It leads us to love and care for our families, but it can also cause attachment to things like pets, cars, houses – or even, yes – your investment portfolio.

If we are around anyone or anything long enough, we develop either an aversion or an attachment to them or it. This attachment behavior is part of the evolution of humans as social creatures.

What is important for survival is rewarded in the brain, but it is not necessarily rewarded in markets. We end up valuing what we already own more than what we do not own, regardless of the investment merits.

Your portfolio will never love you back, so you should not be too attached to it. Investing is a continuous process of identifying attractive risk/reward opportunities and shedding poor ones.

Nevertheless, it is hard to detach from a portfolio that was painstakingly chosen and nurtured. One way to deal with this is to have an investment professional manage your assets using a disciplined process.

Looking Ahead:  April Showers?

As I alluded to in the Week in Review, despite the strong rally in equity markets during the past couple of weeks, more turbulence is likely on the horizon.

Am I suggesting you sell all your existing stock positions and go to cash? Of course not!

This may be, however, a time to reduce some of your riskier stock positions, you know the ones I’m talking about – they go down 15% when the overall market is only down 5%.

It may also be a time to reduce the size of your largest positions. No one stock should make up more than 10% of your overall portfolio.

With interest rates moving up, you can now park some cash in short-term Treasuries yielding between 2 and 2 .5%. It will feel good to have some dry powder ready to buy attractive companies if they go on sale again in the coming weeks or months.

Copyright 2024 The Business Journal, Youngstown, Ohio.