Day 296: DOW up +160
Mother's Little Helper portfolio was DOWN today-$182.31 (-0.02%)
Overall GAIN YTD: +$263,351.55 (+45.10%).
Our benchmark index, the S&P 500 is up +14.40% Year To Date.
The DOW closed up +160.16 points today, but Mother's Little Helper was flat on the day, technically we were down -$182.31. So what happened? This is one of those times when investors scratch their heads and throw their hands up in the air and scream, "I GIVE UP". All this was is a rotation during earnings season. Money rotated from stock the portfolio owns into stocks we don't own. Eventually the stocks we own will show their value again and money will flow back into our companies.
I'm driving to Montana tomorrow to visit mom. If anyone has any questions for my mom and what she thinks about the portfolio and blog she inspired please post them here on this page. Just scroll to the bottom of the page and post a comment.
What's a Rotation?
Money has been flowing into a small number of stocks that have been showing the best growth. Now that those stocks are reaching some pretty lofty valuation investors are looking for other places to invest where they can find a better deal. Think of it like watching the tide ebb and flow. If you watch long enough you think you see a pattern. On top of this dynamic it's earnings season. A whole bunch of companies are reporting their quarterly results and this is driving big gains and big drops in various companies. For instance, IBM has had 22 straight quarters of dismal results, but it holds onto a fairly high valuation because Warren Buffett owns it and doesn't sell it. IBM represents 4.39% of the DOW index and ranks as the #8 biggest company by weight on the DOW. This simply means that a small move in IBM has a big impact on the DOW. Much of today's +160 point gain was the result of IBM reporting a 'not so terrible' quarter.
Treasury yields inched higher today, pushing one of my personal investments (TBT) above $35. In a previous article I talked about rising treasury rates and falling treasury prices becoming a result of the FED unloading its balance sheet of all the assets it bought during the crisis. Even though we have no certainty about who the next fed chair will be, rates have been rising. The ProShares Ultra Short (TBT) goes up in value as long term treasury interest rates rise. In May 2008 when long term rates were at about 4.5% the TBT was at a high of $290 a share. Today the TBT closed at $35.26 and rates are about 2.6%. The TBT has become a hedge against the effects of higher bond yields and currently looks like a good buy right around or below $35 if you expect rates to continue to rise.
I think there are many parts of the market that are still a good value, parts that are cheap and some that are pretty darn expensive. Eventually there will be a correction in prices, meaning the market will drop, a lot, but the market will be supported by a fundamentally strong economy here in the US and abroad. Take advantage of a significant pull back in stock prices to buy some good companies on sale.
Disclosure: I am personally invested long in these stocks that appear in the MLH portfolio and may purchase or sell shares within 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, TBT, 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.