The market has been in a sort of an exuberance mode for the last few months. I’ve made some pretty good money. However, all the positive news have made me think about selling stocks.
The stock market feels a little frothy now, and there are definitely some segments which are just crazy. The IPO market is extremely hot, where stocks like Snowflake, Airbnb, and CS.AI are doubling and tripling.
Professionals becoming positive about equity returns for 2021 make me nervous too. Citibank recently urged their private clients to be fully invested, and to stay that way. I’ve learnt that if you do the opposite of what the banks and brokerages recommend, its usually a lot more profitable. Its the same people who trashed Tesla, recommended selling out at the bottom of the market in March, and only just now saying that the stock market will go up.
How I’m doing it
I’m not getting out the market entirely though. It’s impossible to predict how markets and stocks to move, and far more money has been lost by trying to time when to jump in and out.
What I’m doing is reducing my current margin of about $185,000. I want to return more borrowed money, and reduce my risks in anticipation of picking up future bargains. I would still be more or less fully invested in the market, with about $800,000 in.
I haven’t quite decided what to sell, and some might have to come out of my favourites like AMD and Tesla. This is painful for me, because I don’t like selling, especially great companies with a ton of potential. But I just don’t have a lot of areas where I can trim, and I own just 10 holdings. I may make my decision on the spot, depending on what’s up. I’m definitely selling Facebook, which hasn’t been performing up to expectations. Another potential sale is Tesla, which has a strong possibility to gap down once its included in the S&P 500 this week. Inclusion ends the buying frenzy for traders selling to the index funds, who will pay whatever the price is at that moment.
What’s your takeaway?
I think its a good strategy to reduce margin in good times, and increase it in a down environment. As this is fairly clear to be a good time, I think reducing the risks in preparation of a downturn is a prudent move now. I might miss out on some gains and I could be completely wrong, but I don’t want to chase every dollar and I’m content with my gains for the year. If you are heavily leveraged now, perhaps its a good time to make sure you are managing your risks.
I was caught flat-footed and over-leveraged in the Feb – Mar 2020 crash, which prevented me from buying in. If I had cash at the time to buy, it would have been like hitting the lottery. Instead, I was mainly concerned about survival. The coco bonds I bought crashed for the first time of its history, pretty much wiping out my capital and facing a margin call. For the next round, I would like to be better prepared.
For this blog, I tend to mention my transactions after they happen, within a few days. I’m trying out putting out my musings earlier, as it helps people not be completely surprised and for me to flesh out my reasons for doing something. Keep in mind that I adjust my thinking frequently, and I myself don’t know how I exactly I would play it.
Hope this has been food for thought, and have a great week ahead.