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Q: Jay, your portfolio in early 2008 had about 32% allocated to stocks, and then you even increased that to 45% by early March 2008. On March 13, 2008, you wrote that you felt deep conviction to make a major allocation shift based on what you were hearing from your experts (Letter 19). You also told me you had been praying about it and had even lost a night's sleep thinking about writing it. How long did it take you to actually implement this shift? A: One day. I sold my stocks down from 45% to 14% the next day after writing Letter 19. I suggest you re-read Letter 19. I think you can sense how strong my conviction was that stocks were extremely risky. The Dow had moved from the 7,000 area to 14,000 in a cyclical (short-term) bull market within the secular (long-term) bear market which began in 1999. During this time the world piled into stocks: individuals, retirement plans, hedge funds, Sovereign Wealth Funds, foreigners, etc. The crowd was in, and stocks were at high valuations relative to historical standards. My experts had cash of 50% to 60% and substantial allocations to gold and/or silver. It was time for a major change, and I made it. The next portfolio update, and every one since March, has reflected the low allocation to stocks. Q: When you said in your Feb. 28, 2009 portfolio update that you went even further and sold all your stocks except mining stocks recently, that was only around 3%. What about folks who are still holding a high allocation of their assets in stocks? Any advice? A: That is a question I have no good answer to. If I advise selling, it could be wrong. If I advise holding on, it could be wrong. The only way I know to answer it is to try to put myself in the position I would be in today if I hadn't acted on my allocation change in March. Commit the matter to God in prayer, then devise a plan of action. Q: Hypothetically, then, what if you had not changed your allocations in March 2008? What would you do today? A: Since the Dow is down 50%, I might have 22% in stocks if I had sold nothing, and I would have a 40% to 60% loss in the stock portion of my portfolio. What would I do? I would decide what I wanted my portfolio allocation to be. Then compare that to what it is and plan to adjust from where I am to where I want to be in a series of steps over time. Each step could be 10%, 15% or 20% of my current stock total. The steps could be six weeks apart, or following a good rally in the market, whichever comes first. I would keep it before God, recommitting to Him to be a good steward of His money. Q: What would you do with the money from the sale of the stocks? A: Move it to my desired allocations, especially cash, gold and silver. This plan will work for any portfolio, no matter how its currently allocated. Q: Do you have any suggestions for those who now accept that it's time to take a loss and follow your lead (better late than never) but who feel a sense of loyalty to the stocks they own? A: I've been taught to accept that the loss has already been taken whether or not I sell. The real issue is, what is the best risk/reward strategy going forward? My experts expect this secular bear to continue till 2014-2020. (See the charts below, which illustrate their basis for this expectation.) If you're patient and want to hold, stocks will be a great asset to own again some day. But I agree with the best wisdom available to me that it could easily be 10 years. If my experts thought it would be much shorter, I'd say hold on. But I'm sticking with them. If they're right and you hold, you'll miss great opportunities in gold, agricultural commodities and energy with the money you kept in stocks. Q:
What if I'm struggling with the decision, finding no real conviction or peace?
The above charts are provided courtesy of http://www.speculative-investor.com and http://www.decisionpoint.com/ The contents above conversation were taken from an e-mail exchange between Ted Spaeth and Jay O'Keefe. |
