Market Turmoil or Transition?

With the recent market sell-off, many investors have been asking: What is causing this?  Should I get out of stocks completely?  Is there a safe-haven? What they are really asking is: What should I do now?

Passive to Active

In 2007, passive investments represented 26% of the U.S. Stock Market.  Now, in 2018, 83% of investments are passive.  This means that most of the investments are made (in mutual funds, ETFs (Exchange Traded Funds) and by passive managers) without much regard to the fundamentals.  This tends to exacerbate market moves in both directions and causes additional volatility.  We have seen this to the upside, where the FANG stocks (Facebook, Apple, Netflix and Google) have propelled the market higher.  We can now see it to the downside as this can lead to indiscriminate selling, potentially allowing great companies to be sold off for no reason other than their inclusion in an index.

What we need now more than ever is to evaluate companies on their fundamentals and earnings, moving our investments from passive back to active management where the company’s performance is most important.

Overvalued to Undervalued

During these times there is a divergence that occurs from the true value –referred to as the Intrinsic Value, and the current Market Price of an investment. We should look to be buying companies whose market price is currently lower than its intrinsic value.

We have constructed a portfolio to do just that. We suggest moving to this Intrinsic Value Portfolio. It’s easy to see that the fundamentals of such a portfolio will be more resilient in these times and positioned for a higher probability of long-term success.

Get Out Of	Get In To
Overvalued Equities	Undervalued Equities
Fixed Income	Variable Income
Speculative Paper Assets	Defensive Real Assets
Passive Funds and ETFs	Active Management

Let’s get together to discuss how we can transition or rebalance your portfolio to be better able to weather the storm that we are predicting is ahead.