Day 178: Who Earns 28%?

The Mother's Little Helper portfolio was UP today +$1,814.25 (+0.24%).

Overall GAIN YTD: +$164,033.78 (+28.09%)

According to CNN Money our benchmark index, the S&P 500 is up +8.74% Year To Date (http://money.cnn.com/data/markets/sandp/).

I will admit that there was a time during the first week of January when my imagination ran wild and I conceived of this portfolio generating returns as high as we have today. But that was under the influence of a caffeine and M&M's sugar high and naive day dreams! Investing and getting a good return is fun, but blasting the S&P 500 by over 3X makes me a little nervous.

But why, why should I be nervous. The economy is strong, companies are reporting good earnings numbers, employment is low and the general outlook from CEO's is very positive. I'm nervous because it's possible that investors are getting ahead of themselves. Like that sugar and caffeine high, investors can get overly optimistic, pay up for stocks and then have the worst possible thing happen; the market get's good news. Yeah, that's a bad thing because what follows is investors pay up even more for stocks (the greater fool theory) and then when a pull back does occur (investors take profits) the down side can be a real gut wrencher. The running out of fools theory.

Without sounding too preachy, I'll ask and answer my own question, "what's the good news"? With stocks at these levels I'm worried about the banks passing their stress test (oops that happened today), the Fed raising interest rates (oops that happened), Congress passing a new healthcare plan, corporations repatriating overseas cash, oil finding its bottom ($40ish is my number), infrastructure spending, growth in military spending, growth in aircraft orders, a boom in electric/autonomous vehicles and related technologies, and pharmaceutical companies not getting hammered on pricing nearly as hard as we all once thought. All these things are good news for investors and slowly but surely they are all happening. So what's the answer, how do we avoid taking that next step off the proverbial cliff? Simple, stay invested, take some profits around your best investments to raise cash and make sure that you hold a portfolio that includes index funds (VTI, VEA, VWO, MUB, VIG, XLE), growth stocks (FB, AMZN, GOOG, OMER, DVAX, CELG) and defensive safety stocks (PEP, CAT, PG, HON, BA, C). The cash is important, you want to be a buyer not a seller when the correction comes. No matter which way the market turns that type of diversification will help soften the blow.

I like the view from the edge of the cliff, but the next step could be a doosey.

Stay Invested,

Clay Baker

Disclosure: I am personally invested long in these stocks that appear in the MLH portfolio and may purchase or sell share withing the next 72 hours. I am also invested in other stocks that do not appear in the MLH portfolio: BA, BRK.B, CELG, CSCO, CTXS, CVX, DOW, DVAX, FB, IBM, NTES, NVDA, OMER, PFE, PG, RDHL, SCHW, THO, TWX, VEEV, VZ, XLNX, XOM

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.