Transcript:
Tom Vaughan:
Hello, everybody, welcome to Monday. The S&P 500 broke its five day losing streak today: It was up .23%. The Dow was up, and the Russell 2000 Small Cap index was up, and the NASDAQ was down, but just a little bit. So, several important things that I think are worth looking at today.
Number one, is we just broke a down streak, which I think is important. But actually, I think tomorrow, and maybe even the next day, are more important. So, tomorrow is pretty strongly up, and people are coming back in and buying the dip: This thing’s probably over. If it falls some more, or what have you, we probably still have a little bit more pain to go through here before that happens. So, we’ll see what happens tomorrow. I think that’s interesting.
The other thing that was fascinating about today was that the Dow did so much better than the other indexes; and it’s been kind of lagging. And one of the themes I’ve seen this year all together is that, whatever was doing really well, tends to kind of fall off… fairly frequently, and then whatever’s kind of falling off and starts to pick back up again. So you’re getting this kind of rotation, back into this kind of bottom fishing. And there’s a lot more of that happening here, including the fact that we haven’t had many of these big dips, just people are just coming in when it does drop. So, we’ll see what happens as far as that goes.
The other thing they think is important is to really understand what to do during these timeframes when the market is coming down. So this is what… I how I look at it. First of all, you need to have a portfolio that matches your risk tolerance. And that really has a lot to do with how much bond versus how much stock. Because you don’t know what’s going to happen with the markets: …Things can happen on the upside, very fast or low downside very fast. And so that balance is really important to kind of match your goals and your personal risk tolerance. And that’s pretty important. And one nice thing is that, bonds did go up in this five day period, which is exactly what you would hope and why you have them in the portfolio.
But, I always look at I always look at these as an opportunity also. So if the market is going to come down really hard, then we have our plans for how to deal with that, how to get more defensive, how to maybe use long term treasuries. But in these kind of slower downturns like we’re seeing here, I want to see a couple things I’m looking for. Number one is: What holds up? What does better than the market as a whole? What segments of the stock market is still doing better than the overall market as a whole? What that tells me is that the market’s more interested in those segments right now, and so that’s something I look at.
And then the other thing is I look for what’s called “a stretch.” And so I’ve talked a lot about how, basically it’s like a rubber band. And so you stretch that rubber band to the upside, the market’s going up and up and up and up, and then eventually, it has to kind of snap back down. Well, the opposite can happen. Also, sometimes when things are coming down, you got this market or this particular stock, or a portion of the stock market comes down farther and farther and farther and farther, and it really comes down maybe too fast, and there might be a chance for it to snap back up. And so, I have about 225 Exchange Traded Funds, for example, I flip through pretty much every day, looking for different things. And so when I go through looking for the stretch, there aren’t any right now that are in that category. Mainly, because the market’s been doing quite well. The downturn that we’ve had so far has been, quite, quite small; but that is one piece. Quite a few different pieces, though have outperformed the market as a whole. So those are interesting, and we’ll keep an eye on that.
But that’s what makes tomorrow important. So tomorrow’s a big up day. It doesn’t really matter: You just basically stick with what you’ve got, more or less; see how that goes. But if there continues to be some downturn, maybe there’s some things that we can do. Mostly right now in our portfolios, we have about 75% of the stock market allocation, dedicated to just the broad market. That’s working quite well, as far… as I’m concerned. And so then the rest is just these kind of targeting indexes, which gives us a chance to take a look at some of these other areas that I’m talking about. So anyway, look forward to talk to you tomorrow could be an important day. Thank you very much.