As most major stock market indices hit fresh all-time highs, I thought it would be a good time to reboot this timeless quote by one of the smartest investors of all time, Warren Buffett: Be fearful when others are greedy, and greedy when others are fearful.
Based on current market conditions, I would focus on just the first part of this statement, be fearful when others are greedy. If you look at one of my favorite graphs below, the “be fearful” part would show up somewhere between Thrill and Anxiety. It seems like investors are entering that range right now: nothing seems to shake the stock market and if something does make it drop, it almost immediately bounces back.
Now, I’m not trying to give the stock market the malocchia (Italian curse, literally means evil eye) and I’m not saying to sell everything and run to cash. I just want to point out that it is never a bad move to take some profit at a time when everybody else is buying. For example, if you have held a stock or mutual fund that has grown in value and now makes up 20% of your portfolio, maybe you should sell 2% of it and use the cash from that sale to buy another investment or wait for the original investment to drop down and rebuy it at a lower price.
I don’t think anybody can predict what the stock market will do over the short term (less than 2 years) but we do know that markets don’t always go up and they don’t always go down. During times like these, when pretty much every stock is going up, it doesn’t hurt to assess your investments and take some profit, even if it feels like you should be doing the exact opposite.
.Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
