The financial markets of today are among the most challenging I’ve faced in my career. Cash is paying next to nothing, bonds with any length of maturity are risky and the high-yield and short-term maturity market is overcrowded. That leaves stocks, and perhaps more specifically, U.S. stocks. Foreign stocks, you see, are less attractive partly due to the rising U.S. dollar. Actually, the supermarket of financial goodies appears to be less stocked, at least on the surface. What to do? In this post, I’ll discuss a few alternative ideas I’m considering.
Over the past few years, I’ve been buying stock ETFs on dips and backstopping them with trailing stop orders. That’s worked well, but is it enough? For example, unless you have a decent allocation to stocks, other holdings in the portfolio may be a drag on returns. I believe the answer may be found in the details.
I just finished reading a good piece from Porter Stansberry of Stansberry & Associates Investment Research LLC. In it, he discusses the “oily banks” which are banks with a large exposure to the oil fields, most of which are in Texas. He writes that although oil prices have plummeted lately, the stock prices of these banks has not yet adjusted. In short, if oil prices remain low for much longer, the loans of these banks will be in trouble. His suggestion? Short these banks. I mention this only as an example of theme investing, something I am seriously considering. It seems as though we have to look deeper into the fabric of America and the world to find investable ideas. With this as a backdrop, here’s what I’m considering.
The New Portfolio Allocation