Tag Archives: Stephen Ahern

Market Nosebleed? Time to re-balance?

With the Markets daily hitting new highs with little pullback, it may make you remember the “go-go” late 90’s. Then the “new paradigm” of stock valuations justified the high prices despite zero or negative earnings. The market went so high most of us ended up with ”nosebleeds”. This time is very different.

Most substantial bull markets are accompanied by new theories trying to explain the market and why traditional valuations using P/E multiples no longer seem to be valid valuation metrics. In the current rally, P/E multiples on stocks remain in-line with historic average levels. The market is hitting new highs, but valuation multiples are not! Thus, we believe the fear of nosebleeds at this market level might be a bit premature. We would expect P/E’s to rise dramatically if we were going to see a significant drop, but currently stocks seem to be fairly priced.

If the muddle-through economy continues, stocks should continue up on a reasonably trajectory. We still have some worries about the weakening effect that the sequestration and cutbacks in government spending will have on our nascent recovery, but this is precisely why we re-balance portfolios and stay invested in our asset allocation to reduce overall portfolio risk.

We have received several inquiries from clients about re-balancing their portfolio now that the market is reaching new highs. Rest assured that as part of our normal process, we review each portfolio at specific intervals and recommend re-balancing when the portfolios are out of alignment with each client’s long-term goals. Even when markets are volatile, we keep an eye on the allocation drift and, as we monitor it, we may make a recommendation to re-balance the portfolio more than our customary semi-annual re-balance.

It is important to note that a proper re-balance strategy is done at set intervals and must balance the need to keep things in alignment with the need to keep transaction costs low. The near-impossibility of perfectly timing a market bottom or top is why we stick to our knitting and follow the plan. Remember, you must have a long term perspective to be in the market. A reasonable approach to asset allocation and re-balancing will do well for the vast majority of investors and help avoid the fears of nosebleeds and market crashes.

If you are having a market “nosebleed”, give us a call at 877-448-3400 and we can help you with the proper cure!