This will be my long, end of the year post. Feel free to skip it if you have ADD.
So, its that time of year. Being the end of the year. Time for retrospection, looking back at the trading year and more importantly portfolio rebalancing. Also its time to set a plan for 2022 and beyond. For many of you, trading in a high inflation/rising interest rate environment might be a first. Stonks do in fact go down. And sideways.
Look at your portfolio and be honest about your winners and losers. Ask yourself, do I want to own this for the next 10 years? Day traders can skip this section. All of us invest differently. My personal opinion is over the long haul, owning solid blue chips with strong balance sheets and a moat is the way to go. At some point you might need to accept the realization that stocks going up 30% a year isn't "normal". The Fed has been able to be accommodating because inflation has been non-existent. Thanks to a few trillion injected into the economy, we get to have some inflation once again. From an economics perspective the only real way to lower inflation is to remove money from the economy. The only tool the Fed has to do this is raising borrowing costs (interest rates). Tech stocks tend to not like higher interest rate environments and our economy has been driving by Big Tech.
Cutting the losers out of your portfolio doesn't really help if you are just going to keep trading the same way that got those losers in your portfolio in the first place. Its ok to chase a meme stock, but dont build a portfolio with them. And know when to walk away with profit in your pocket. You have got to be cognizant of the changing investing environment and adjust your risk profile. Example: I have traded puts twice on PLTR and both times I paperhanded them above 50% profits. I sold longer dated puts and grabbed some time premium and walked away in a week on both trades. Had I held out for "max profits" I would be owning the stock in one case and most likely owning it in the second case unless a turn occurs in the next few weeks. My point is your trading style needs to evolve with the conditions the market gives you. Today's market isnt about hitting a few homeruns with lots of strikouts, its about lots of base hits and few strikeouts. We are now in Tony Gwynn/Wade Boogs investing in my opinion. Lower risk comes with lower rewards but lower rewards are better than losing money. In the last 30 days (chart below), PLTR is down near 25% but I made money writing puts even though it was moving lower.
Next and just as important, you cant time the market. Stop trying. Money is made letting it ride through the ups and downs because in the long run it keeps going up. Its ok to have a cash position, but have it so you can use it to make money while the cash is sitting (example for cash covered puts). Going to a big pile of cash that just sits while you wait for a crash is just... bad investing. This comes back to portfolio design. Own shit for the long term. The only reason I am ever looking at AAPL, MSFT, ABBV, FTEC etc is because I am looking for entry points to add to my positions. Never to sell them because they go down 10% or I think they are at a top.
For 90%+ of the readers here, 50% of your portfolio should be in an index/indexes (SPY, QQQ, FTEC etc). This includes me. You just let it run and add to it on downturns. 40% to 45% should be in blue chips that you want additional exposure to (since they will most likely be in your index holdings) or you want to own more of than the indexes hold. That last 5% to 10% should be for you to play with and learn with. Be it meme stocks, learning options, or just investing in something that sounds like a promising idea. This is the pool of investing dollars where your would put some cash in something like MTTR.
This is my Christmas gift. Go back, read this thread, and look for ideas and experiences others have posted about. Learn from other's successes and mistakes.
Happy Hanukkah.
