The markets continue their upward climb in the face of many potential problems. Greed usually creates the final stage in a market cycle and folks don’t like to feel as though they missed out on the bull market. This is what is referred to as “climbing the wall of worry” and it can be puzzling. The difficult part of this stage is figuring out how long it will last. In 1987, it lasted nine months, coming out of the 1998 low, it lasted 16 months and in 2007, it lasted about 12 months. The market could produce impressive returns during this period, often the best of the entire bull market, but when the trend changes, it does so quickly. All one can do is be aware of warning signs and prepare to act quickly, if needed. As of now, there are few signs of a trend change from a long-term perspective so we will maintain positions that keep performing well. When adding a new position to the portfolio, we do not look at relative strength, as is the case during markets that look to have a long way to run. We want to own good companies with a dominant market share position that are cheap in terms of their potential for future growth. This is in anticipation of a change in market leadership to what are termed “value” companies.
Our method of managing portfolios is built on the premise that the market rewards different types of companies, based on the current economic cycle. Major corrections and bear markets often accompany the market’s change in leadership. We believe that we are close to a change in this leadership and are looking for companies we believe will perform the best in the next cycle. These stocks are often not on the same cycle as the overall market, so they aren’t the hottest stocks of the day and have often experienced corrections of their own. The adage “It’s a market of stocks, not a stock market” exemplifies the idea that not all stocks move in tandem, especially during change in leadership. We will be re-aligning portfolios over the next few months, taking profits in positions that have grown above our desired portfolio allocation and using cash investments to buy new positions.
If you have any questions, please give us a call or send us an email.
Gary and Dianne
This report is provided as a general market overview and should not be considered investment or tax advice or predictive of any future market performance.
Any security mentioned in this report may not be suitable for all investors. No investment mentioned in this newsletter constitutes a recommendation to buy, sell or hold a particular investment. Such recommendations can only be made on an individual basis after an assessment of an individual investor’s risk tolerance and personal circumstances. Past performance of any investment mentioned is not a guarantee of future performance. Statements regarding the investment concerns and merits of any company and fair market value computations are strictly the opinion of Marin Group. Employees of Marin Group and Marin Group clients may have positions and effect transactions in the securities of the issuers mentioned herein.