How should you ‘trade’ through and position your portfolio for the US mid-term elections?
It is was a mid-term election just last week and I wanted to go through a bit of a risk management today to go over how to position your portfolio.
One of the things we’ve been talking to my clients about over the last week or so is to go to the sidelines temporarily during this time.
I see a lot of people holding excessive risks and one of the easiest ways to eliminate this risk is to STOP holding trades through ‘known unknowns’…
For example, an election such as we had last week on November 6th was a known unknown. In other words, we know the event, but we don’t know the outcome.
Some people think they know the outcome, but they really don’t.
Holding trades through these kinds of things (including earnings reports) is a ultimately a losing proposition.
What we really want to do is take our skin out of the game until the event passes and then let the market react to the news before we position ourselves.
What we were telling most of our clients last week is that we were probably not going to open any trades until the day after the election.
Let the markets react first, then position…
Why? – because we want to give the markets time to react to the news before we take our positions.
One of the things we are looking at right now is the S&P 500. Not that the whole world revolves around the S&P… but it has been a really good indicator of where the market is heading.
We’ve been tracking this and walking our clients through this for the past 4-5 weeks or so and obviously we have broken our upward trend, but it’s really not been so bad.
The question really is… is this the new low?
Or how much lower will this go?
Now the question becomes, when do we start buying for an end of year rally?
The odds are really good going into the year end, but at this point its hard to see where we are going in the near term.
You have to be patient.
The patience game is important and you have to practice patience in investing. A lot of people get worried that they are going to miss out on something big, but its harder to chase losses than to find winning trades.
So hang tight and keep your eyes on the big indicators as we get closer to the new year.
Thank you all for watching (and reading)!
Serge Berger
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