Riding High
The S&P 500 and Dow fell from the all-time highs they reached at the end of last week, with the S&P 500 falling about 1% during the week and the Dow dropping about 2.7%. The Nasdaq, which touched an all-time high during Friday’s trading session, ended the week up about 0.2%.
It’s that time again. With stocks at or near all-time highs and some strange things happening—such as mega-cap Tesla moving up 22% on Thursday alone—it’s an excellent time to examine your portfolio and ensure you have the right balance of offense and defense for your emotions to handle the unpredictable future. As Howard Marks discussed in his most recent memo:
I’ve previously expressed my view that, as a starting point, every investor or their investment manager should identify their appropriate normal risk posture or offense/defense balance. For each individual or institution, this decision should be informed by the investor’s investment horizon, financial condition, income, needs, aspirations, responsibilities, and, crucially, intestinal fortitude, or their ability to stomach ups and downs.
Once investors have specified the normal risk posture that’s right for them, they face a choice: they can maintain that posture all the time, or they can opt to depart from it on occasion in response to the movements of the market and thus changes in the attractiveness of the offerings it provides, increasing their emphasis on offense when the market is beaten down and on defense when it’s riding high.
Markets and investor sentiment, at least regarding the major indices and the handful or two of stocks driving them, seem to be riding high once again. High valuations and high sentiment usually correlate with higher risk and lower returns eventually—although not always, and usually not immediately.
We can’t predict how things will unfold or how quickly. But we do think it’s important to be aware of the risks one is taking and to make sure they are the risks one wants to keep taking going forward.
Tweets of the Week
In Case You Missed it…
Ruminating on Asset Allocation - by Howard Marks
The Inner Animal - by Sean Iddings
The Intelligent Investor at 75
The Intelligent Investor Rides Again w/ Jason Zweig (RWH050) (video)
Ask The Compound Podcast: How to Write with Morgan Housel
Joys of Compounding Podcast: The Art of Accel-ing
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