Let me give you a real world example of the state of the stock market.  I came across this by accident while reviewing my total portfolio.  I know everything that is in my portfolio but on a day to day basis, I don’t look at it as a whole.  Because my stock portfolio is diversified, there is always a piece of it that needs attention but rarely does all of it.  For this reason, looking at the entire portfolio in terms of performance isn’t overly important.  So let’s take a look.

 

 

First, I believe in being defensive right now.  I’m not out to get rich.  I’m simply looking not to invest in a way where my stock portfolio is tied up.  What I mean by this is that I don’t want to be in a position where a stock has gone down in value so much that I have to either sell it and take a big loss or hold it knowing that I will have no choice but to wait or go back to choice #1.  I like my holdings to be liquid all the time.

 

Those are great rules aren’t they?  In the late part of last summer, what I don’t want to happened actually did happen.  Morgan Stanley was first to go.  I remember a pair of 30% drops within days of each other.  When the dust cleared, I was down 67%.  I made the decision to hold on to it and to make it worth my while, I ended up buying more of MS when it was in the low teens.  I believed in the new model and thought that it would eventually get in to a range above the overly depressed value.  That happened and I made some money on it.  If I wanted to, it allowed me to sell my more expensive shares at a wash and liquidate.  I still haven’t done that, though and probably won’t because I still believe in Morgan.

 

This story played out on one other position as this was the top tier of my stock portfolio where I allow myself to get a aggressive.  Much of my portfolio is much safer.  With my core holdings like Deere, GE, and Walmart, I own them because they are good companies with a great record.  The chances of losing it all in these companies is nearly zero so when they are depressed in value, I’m buying on sale.

 

So how does my portfolio tell us anything about the state of the economy?  At one point during this downturn, my stock portfolio was down 28% since September.  As of February, I’m down 16%.  It has been a slow movement but even with the worst of days recently, the overall trend, at least in my holdings, is one of upward growth.  The S&P 500 is down 32% to date so I’m happy with where I am.

 

I don’t know that my stock picking has been that good but one thing has:  My patience.  No quick decision, no emotional selling.  Knowing that stocks go up and down gives me the idea that very few losses have to be a loss.  It may cause me not to be able to trade around some positions but that is far from the end of the world.

 

Take two lessons from this:  First, things are getting better.  That can be another article.  Second, be patient and when things get bad, if you are confident in your holdings, be patient.