I think it is partially true.
If you made 10X with a (growth) stock and there is a big catalyst like the raise of interest rates, it makes sense to rebalance IMO
As of June 2019, large money center banks represent value stocks. Bank of America Corporation (BAC), JPMorgan Chase & Co. (JPM), Wells Fargo & Company (WFC), and Citigroup Inc. (C) all trade at a significant discount to the market based on earnings. For example, Citigroup has a P/E ratio of 9.67 compared to 19.12 for the average S&P 500 company.*
Anyway I would like to point out that I’m trying to add a different point of view and collect different opinions/strategies
Just because a stock has a P/E way lower than the average, doesn’t imply it is a value stock. That may be the definition of investopedia, but there’s way more to it than just comparing P/E ratios. A company may have a P/E of 2, but still not be a value stock because it’s intrinsic value is higher than it’s price. If it would be as easy as that, Berkshire wouldn’t have such a high cash allocation.
What I want to say with all this, don’t just blindly follow what the big guys are doing, if it would be that easy, everyone would be the big guy already. Investing is simple, but not easy.
For sure, otherwise you and I would not talk about strategies in a forum
I think I never said that I’m copying 100% the big players.
I guess, unless you have a team of analysts, everyone is absorbing information from different sources and then adapt to his age, risk tolerance, family situation, goals, etc
This has been a good idea for a couple of years now. Whether it holds true in times of rising inflation and interest rates is another topic (that has been discussed in this forum recently).
This helpful post from @wolverine was shared in the context of SWR but perhaps a good reminder.
It shows that if you lower exposure to stocks by too much to reduce risk in the short term, it is likely to decrease wealth in the long term. In other words more years until FIRE
As always it is a trade off and the investment strategy should depend on each person’s individual circumstances. If you try to time the market and get it wrong you miss the returns from stocks
In 2022 I’ll stick to my strategy. This implies 3 things:
a) Maintain my 100% ETF portfolio in balance, i.e. 80% World (mostly VWRD + some VDEM) and 20% Switzerland (mostly CHSPI + some CSSMIM). 4 ETF’s, that’s it.
b) Invest any cash surplus at the beginning of each month, provided my tactical cash reserve is at the desired level. Tactical cash reserve will be deployed if market drops below defined levels (“investment staircase”)
Thinking about this topic, and thanks @user137 for creating it, I think that a good part of the preparation for a potential crash is psychological: trying to visualize the crash while making our asset allocation/strategy and then standing ready to apply it through thick and thin. Having envisioned it beforehand and recognizing it as it unfolds makes living through it easier.
I would recommand posting our plan here in order to be able to get back to it if/when a crash occurs. I would also suggest that we make as sure as we can that that allocation/plan is something we can follow during times of hardship, when markets go down, then up, then down and additional pressures build up in our lives (less financial stability, a potentially less attractive job market and potential stress building up).
Generally we are considering 2nd pillar as bond-like for portfolio calcs. This is because they guarantee or assume around 2% return. Even though we know Pension fund may invest in stocks (e.g. mine is around 35% growing to slightly less than 40%)
Here is the 2022 plan, part of the long term IPS strategy.
Stocks - representing 50% of assets
I expect a 10-20% correction on the markets in 2022 and I was saving 20% of past months savings in cash for buying this dip. Instead of the monthly investments I usually make, I only invested 50% and kept the rest in cash. In 2022 I will continue to buy monthly and also additionally to any -5%, as always, the following ETFs:
iShares Core MSCI EM IMI UCITS ETF - 30%
iShares Core MSCI World UCITS ETF - 30%
iShares MSCI World Small Cap UCITS ETF - 7%
iShares Edge MSCI World Value Factor UCITS ETF - 7%
iShares Edge MSCI World Quality Factor UCITS ETF - 6%
Cash ammo (used as described above, kept instead of bonds) - 20%
2A not included in the above, 3A 99% stocks are included as per accommodating above percentages.
Real estate - 50% of assets
Rented apartments in another EU country, delivering 5% yearly net returns.
Because statistically it should happen (I know I can’t predict it, it’s just my personal feeling on which I am I assuming the risk of keeping more cash).
Statistically it should have happened already in the last few years. Since well before the pandemic I heard almost daily “the crash will come soon/next year”. It’s maybe tomorrow or next year or in 10 years, no one knows.
There will always be people predicting the crash and 1 out of thousands will be correct and in hindsight, everyone will think he’s a genius. Then he’ll write about his strategy and the parameters he used to predict and sell it to others, and the next time a crash appears, they’ll realize that it was pure luck.
If someone asks me to show him/her one picture to convince him/her about long-term investing advantages, I think this one will be the best. However, would be cool to see the same for:
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