market valuation

Choose Your Ingredients 

by Mark Leibman, Advisor

More content from Mark

I learned how to make soup back in the last chapter. Now a variety of soups are a staple of my diet. 

Crafting a new soup recipe recently, I started with a chicken, six herbs and spices, and seven kinds of vegetables. I used some olive oil and a splash of red wine vinegar. It may be served with a mix of seven kinds of beans, and rice, of course (you know how I feel about rice and beans!). 

It came out really good!—according to a biased observer that I recently married.  

Contemplating the choices made in the creation of the soup, I thought about how we build portfolios here at 228 Main.  

From many alternatives, we select what we want to own and determine the proportions of each. Another school of thought holds that portfolios should consist of some of everything—500 stocks go into the S&P 500 index, for example, so portfolios get to hold a little of each. 

That led me to wonder, What would Index Soup look like? 

  • 150 herbs and spices? 
  • 50 kinds of vegetables? 
  • Beef, pork, chicken, fish, and eight more kinds of animal protein? 

And it might even be served with 25 kinds of beans, and 10 varieties of rice! 

That would have to taste like a little bit of everything, and not much of anything, wouldn’t it? 

Just as different recipes can reflect a wide variety of tastes and textures and smells, and we humans have an appetite for different things at different times, our portfolios evolve and change as conditions unfold. 

By looking for the best bargains, by avoiding stampedes in the market, by planning to own the orchard for the fruit crop (thinking long-term), our collection of opportunities has diverged from the most popular kind of Index Soup, the S&P 500.  

Creating our own recipe helps avoid another possible pitfall of Index Soup—not that it can get too bland in its attempt to average everything, but that it can get too heavy-handed in spicy times. 

Recently, slightly more than half of our long-term portfolios are invested in small- and mid-size companies. We’re diversified around the world, although about two-thirds of value is still invested in the U.S. While AI-related stocks have captured the public imagination, we’re focused a little more on value-style stocks than the mega-size growth companies, which we believe may be over-valued at present. No guarantees, but we’re trying to be intentional with our flavors. 

Meanwhile, Index Soup focuses on large U.S. companies, with an emphasis on growth. Technology is nearly 37% of the mix in that soup, and the top seven holdings are mega-size tech companies.  

We know that the flavor can get “too strong” at times: back in the year 2000, the S&P 500 index, and technology stocks generally, left a bad taste in the mouths of many investors the last time valuations approached extreme levels.  

We can’t know the future, but we are hopeful our recipe is going to “taste” a lot better in the months and years ahead. No guarantees—past performance is not an indicator of future results. 

But we don’t have to be the best chefs in the world. We’re just trying to find a blend that works for us. 

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Investing involves risk including the loss of principal. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. 

The S&P 500 is an unmanaged index which cannot be invested into directly. Past performance is no guarantee of future results.  

Play the audio version of this post below:

Choose Your Ingredients – 228Main.com Presents: The Best of Leibman Financial Services

The text of this episode is available at ⁠⁠www.228Main.com⁠⁠.

Fear and Greed

© Can Stock Photo / Andreus

Two of the primary emotions affecting the stock market, it is said, are fear and greed.

Facts and figures are prominent in our work of assessing and ranking various investment opportunities. But in the day to day action of any market, buyers and sellers and their motivations have an oversize impact.

In our view, fear has dominated most of the last eight years in the US stock market. Many investors sold out after the double drubbings beginning in 2000 and in 2007. Money flows from retail investors, reflecting withdrawals from the market in most recent years, seem to confirm it.

Anecdotally, we also noticed burgeoning interest in strategies that hoped to avoid exposure to the stock market yet still make money. Commodities, derivatives, factor investing, bonds at low interest rates and other fads drew in a lot of money. This, we believe, reflected fear of the stock market.

For much of the market rise since 2009, it was said to be ‘the most hated rally in history’ because so many people missed out.

Knowing Warren Buffett’s famous dictum, “Be greedy when others are fearful, and fearful when others are greedy,” we stayed the course through the downturn. None of us hated this rally, did we?

Now the market sits at all-time highs. This probably makes sense when earnings are high and rising, and interest rates remain fairly low. But we are on the lookout for signs that greed has become the dominant force in the market. When others become greedy, perhaps we need to become fearful.

We are also doing other things, as well. You may have noticed winning positions getting trimmed back, and potential new bargains (we hope!) being added to portfolios. Owning bargains is no guarantee against loss, but we believe it helps. We are also nibbling at other markets in other lands, ones that have lagged and may be at low levels.

Our new portfolio design, accommodating layers of cash and more moderate investments as well as our traditional research-driven core layer, is another way to attempt to mitigate future downside.

The markets go up and down. We cannot build wealth over the long haul without facing that, and living with it. If you would like to talk about your portfolio or situation in detail, please call or email us.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Stock investing involves risk including loss of principal.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.