Friday File: A New Cyclical Buy

Adding a distributor to the Real Money Portfolio, plus a few more buys and sells, thoughts on Lemonade, Intuitive Surgical, Pershing Square and many more...

By Travis Johnson, Stock Gumshoe, January 15, 2021



I don’t know what’s going to happen to interest rates, taxes, GDP growth or the stock market, all of which are intertwined, but right now the sentiment expressed by the market seems still to be vaccine-driven optimism about economic recovery from the pandemic, which implies that the renewed push to speed up vaccinations will lead to something akin to “normal” in six months, another likely stimulative spending program to speed that recovery up in the early days of the Biden presidency and bridge the economy back to that hoped-for “normal”, though I’m sure there will be plenty of squabbling about exactly what the government should do, and a continuing assumption that the Federal Reserve will be able to keep interest rates very low for a very long time, regardless of whether the stimulative spending ends up finally bringing the disastrous inflation that pundits have been predicting since 2011.

If any of that changes, it will surprise us — big shifts always do — so now’s a good time to think about what happens to your portfolio if things turn on a dime and we face, say, a full-on market crash or a significant burst of inflation… you don’t have to predict it, and it might never come, but it’s important to be at least a little bit prepared. As I seem to end up mentioning pretty much every week, if you’re an individual investor your most important job is to manage your own emotional response to market stimuli — you need to have a plan for how you’ll react to negative things that you don’t expect (inflation, a 30% market crash, a disaster headline for your largest position, etc.). Positive things don’t bring panic, and the market’s positive tendencies generally take care of themselves, so you don’t have to worry about “what if” the market doubles again, or get stuck in “fear of missing out” mode, that’s mostly wasted effort — plan and worry about the downside, and the upside generally takes care of itself.

If you don’t have a plan, you’ll be prone to panic at the worst time — and that’s how you destroy a year’s worth (or more) of returns and set yourself back. Which is fine if you’re 25 and screwing around with day-trading, you’ve got plenty of time to learn from mistakes and catch up from a disaster… but ...

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