Are Stocks Cheap {Playbook, Game Plan & Conclusion}
Every investor should have a long term investment strategy. For the clients of Lumen Capital Management, LLC this strategy comes from our understanding of their unique risk/reward criteria and then incorporating that into one of our six investment disciplines. I attempt to develop investment strategies that reduce and control client portfolio risk while attempting to give clients returns based on their specific investment goals and concerns. Risk can never be completely eliminated from a portfolio. However I believe that many types of risks can be defined and to a certain extent mitigated. I primarily invest client assets by using Exchange Traded Funds {ETFs}. In fact I believe that I have created value by our investment research on how ETFs trade while also developing strategies for investing in this relatively new and exciting asset class.
Each of these strategies is based on something I call the playbook. The playbook is situational analysis based on historical market results. We study money flows along with the disciplines of fundamental and valuation analysis to see how markets have responded to similar historical events. The playbook gives us different scenarios regarding current market activity. We use it to then formulate our game plan. The game plan is a tactical and strategic allocation of assets based on what the playbook tells us has historically occurred. It is then further refined to the specific risk/reward parameters of our various clients.
Much of the historical aspects of seasonality and the playbook we have discussed previously in this post. Friday of last week we discussed the reasons for a more guarded tactical position in the short term. While historical probability has shown that stocks tend to have a positive bias in the first quarter of the year, we are prepared in case that does not occur. In that instance we will bring out the more defensive aspects of the playbook. In certain cases this can mean perhaps writing options versus some of our ETF positions or hedging versus downside risk. The easiest way to become more defensive is to simply raise cash and that is what the game plan calls for in the weaker seasons of the year when the market is overbought. As always we will let our indicators be our guide.
Probability indicates that a favorable presidential cycle, robust corporate earnings, low interest rates coupled with a benign inflation environment and finally a growing economy will be positive for stocks on a year forward basis and we have adjusted the game plan accordingly. Areas of sector concentration include: Technology, Biotechnology, Financials and Energy.
Each of these strategies is based on something I call the playbook. The playbook is situational analysis based on historical market results. We study money flows along with the disciplines of fundamental and valuation analysis to see how markets have responded to similar historical events. The playbook gives us different scenarios regarding current market activity. We use it to then formulate our game plan. The game plan is a tactical and strategic allocation of assets based on what the playbook tells us has historically occurred. It is then further refined to the specific risk/reward parameters of our various clients.
Much of the historical aspects of seasonality and the playbook we have discussed previously in this post. Friday of last week we discussed the reasons for a more guarded tactical position in the short term. While historical probability has shown that stocks tend to have a positive bias in the first quarter of the year, we are prepared in case that does not occur. In that instance we will bring out the more defensive aspects of the playbook. In certain cases this can mean perhaps writing options versus some of our ETF positions or hedging versus downside risk. The easiest way to become more defensive is to simply raise cash and that is what the game plan calls for in the weaker seasons of the year when the market is overbought. As always we will let our indicators be our guide.
Probability indicates that a favorable presidential cycle, robust corporate earnings, low interest rates coupled with a benign inflation environment and finally a growing economy will be positive for stocks on a year forward basis and we have adjusted the game plan accordingly. Areas of sector concentration include: Technology, Biotechnology, Financials and Energy.
posted by CR English at 6:45 AM
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