garlandwhizzer wrote: ↑Tue Jul 23, 2019 5:32 pm
One more factor to add to my post above on tech stocks and particularly the FAANGs. The DOJ is currently looking into questions of abuse of market power with Apple, Facebook, Amazon all of which have until now had wide and ever enlarging moats that discouraged competitors. The European Commission has fined Google $1.49 billion for abusing its market dominance. Governments have it in their power in multiple ways to put the brakes on mega-cap tech if they choose to use it.
Garland, as usual your commentary is excellent.
I want to make a few things clear here. This is not an OMG, the Indexes are in a bubble, and sell all your index funds immediately thread. This is like a yellow caution light, getting people to take a minute and reflect upon where we are. The US Total Stock Market Index and the S&P 500 are good indexes and they have been and will continue to be good investments. I have concerns that the FAANG stocks and the High Tech/Internet stocks are getting overheated here.
What I am doing myself is some Growth to Value rebalancing. I sold down my Total Stock Market Index a bit and took the proceeds mostly to a Large Value Index. Traded part of my stake in a Growth fund into a Value fund. Also traded a bit of a Mid-Cap Growth fund for a Mid-Cap Value fund. Been buying a bit of the S&P 600 Value Index ETF and a bit of the Wisdom Tree International Small-Cap Dividend ETF. Bought a bit of Small Cap Index fund. The moves are relatively small so far but a process of restoring tilts to my portfolio.
Though we don't have the valuation or sentiment extremes we saw back in 1999, there are some eerie similarities. Thought this would be a good time to rebalance from the hot Growth stocks into Value. Again, I am NOT saying to sell 100% of your Total Stock Market Index and S&P 500 funds. This might be a good time to sell a portion and reallocate into Value indexes. Pretty much, selling a portion of your expensive stocks to buy cheaper ones. I would never advocate being out of the large Growth stocks altogether.
How much of a shift? I am not sure of this myself. My thoughts for now is maybe 10% of my Total Market Index fund shifted over to Value. If I get bolder, maybe 20%. I could go even more than that, maybe 30%. I will just watch the markets, depends upon how overheated the Large Growth stocks get. Still thinking this through. But this is something that will be done over time, I am only one month into the Growth to Value rebalance. I expect to be in this process for some time. Maybe a year? Two years? Bit by bit over time. Might also be a good time for US Stocks to International Stocks rebalance. The International Stock Markets are cheaper than the US, particularly Emerging Markets.
So for right now, I am just doing Growth to Value rebalancing. I may go further and do some tactical asset allocation perhaps reallocating 10% or 20% or 30% of my Total Stock Market Index into Value Indexes.
What do I think might happen? Some event that shakes the market and causes market leadership to change from High Tech and the more visible Internet stocks to another sector of the market. When this happens, I could see the Value indexes beating the S&P 500 and Total Stock Market Indexes for a few years. Not predicting Armageddon here. We have been in a Large Growth trend for a decade now and that won't continue forever.
A fool and his money are good for business.