Tags: investors | buy | stock market | dip

Should Investors Buy the Stock-Market Dip?

Should Investors Buy the Stock-Market Dip?

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Wednesday, 01 February 2017 10:20 AM Current | Bio | Archive

What I am fairly certain of is that we are unlikely to exit this year without a fairly sharp reversion at some point along the way. What I don’t know is the timing or catalyst of a more meaningful bear market.

Therefore, there are a few actions to take in order to hedge risks in portfolios currently. There is nothing fancy about hedging risk, it is just about taking action to do so.

Keep it simple.

There are many ways to get very complex hedging risk from utilizing options, shorting, etc. The problem is that you are transferring the risk of being wrong, and losing capital, from one side of the balance sheet to the other. As noted above in a “bull market,” which we are clearly in currently, only be “neutral” or “long.” In a “bear market,” when the trend has become negative, then you can be “neutral or short.”

Therefore, hedging risk currently is about taking steps to reduce risk and become more neutral until a better risk/reward opportunity is presented for being long. 

Clean Up Your Portfolio – Bull Markets Make Us Lazy

  1. Tighten up stop-loss levels to current support levels for each position.
  2. Take profits in positions that have been big winners
  3. Sell laggards and losers
  4. Rebalance portfolios to target weightings
  5. Raise cash and reduce overall equity risk exposure to more conservative levels.
  6. Look to increase fixed income exposure as part of a “risk off” trade.

The election has injected a huge amount of undue and misplaced optimism in the market. Such periods of exuberance have previously ended badly for investors.

While I am still currently long the market, I remain aware of the risks.

If I am wrong, and the market does indeed somehow manage to launch into a full-fledged, viable bull market, then I will adjust risk exposure higher in portfolios.

But what if I am right? How long will it take you to get back to even this time?

Lance Roberts is a chief portfolio strategist and economist for Clarity Financial.

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LanceRoberts
What I am fairly certain of is that we are unlikely to exit this yearwithout a fairly sharp reversion at some point along the way.
investors, buy, stock market, dip
338
2017-20-01
Wednesday, 01 February 2017 10:20 AM
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