The month of March 2014 was an important test for all global equity markets, especially the U.S. stock market. With the threats from the on-again, off-again Russia/Ukraine geopolitical conflict and the confusing U.S. Federal Reserve (Fed) monetary policy statements, it’s a wonder that a significant correction of 10% or more was not sparked by these daily scary headlines.
It seems that the bulls and the bears are evenly matched to fight on, with each able to put only minor dents into the armor of the other’s expectations. At some point, one side will dominate and it will come down to the GDP economic data to be reported in late April.
As long-term investors, we need not worry about daily stock market gyrations. However, it is important to make efforts to manage the risks that impact our portfolios. For example, our Fun Stocks Index corrected down – 9.94% in March even though the entire market barely moved. This divergence occurred because two of our holdings which constitute over 50% of our index (Netflix/NFLX and Priceline/PCLN) corrected down – 21.00% and down –11.64% respectively during March. NFLX and PCLN are two of the best performing stocks in the last 4 years (NFLX up 1391.00% and PCLN up 1731.00% on 2/28/14 since 1/1/2009). As such, it is not unusual for such “high flyers” to drop a significant amount during a short-term period of general negative stock performance. Long-term investors, however, should view these drops as excellent buying opportunities as long as the fundamentals of these companies have not changed. If you are currently holding these stocks in your own Fun Stocks Portfolio with significant profits, it may be wise to lower your risks by taking some profits in these stocks now and then buying them back later at lower prices.
In fact, given the current overall valuation of stocks, it would be prudent to take some profits to remove some of the market risks in your total holdings. Do this with your non-taxed accounts (e.g., Roth IRAs) to avoid capital gains taxes. Retain the cash to buy back the same shares at lower prices, hopefully later this year. This is one essential way to better manage your investment risks.
Due to the herky-jerky actions in the overall U.S. stock market since the beginning of the year, only one index managed to eke out a small gain for the 1st quarter as indicated below:
Fun Stocks Index (no ETF) – 0.38%
Dow Jones (DIA) – 0.74%
NASDAQ (QQQ) – 0.33%
S&P 500 (SPY) + 1.26%
There is no change in our TSOA Employer Retirement Accounts Allocations. However, be sure to check out your “My Optimal Asset Allocation Analyzer” (MOAAA) score to make sure your risk tolerance and risk preference have not changed.