It is the right time to rebalance your portfolio

C’est le bon moment pour rééquilibrer votre portefeuille

We get stuck in one of the worst recessions in history, the COVID-19 continues to wreak havoc in the United States, some countries put a kibosh on the ” déconfinement of their economy, the world health Organization does not see the end of this pandemic…

In short, it is far from a return to normal, and what’s going on there ?

The Toronto stock Exchange has gained more than 40 % since it hit the shallows, on the 23rd of march last. The S&P/500 of the american stock Exchange also, recovering more than 85 % of the losses posted between the top of the February 19, and the hollow of the spring.

Like what, this is never a good idea to throw in the towel when markets are plunging. What is happening in this moment still leaves perplexed. What is there to understand ?

To see more clearly, I have discussed it with Michel Villa, broker, trainer, investment and observer of market trends. He developed a passion for behavioral finance, the subject of his book he self-published author last year (Battery and Front, to combine reason and emotion to succeed in the stock Exchange).

A stock market rebound, uneven

The figures testifying to the stock market rebound, are spectacular, but the reality is more contrasted. In the United States, the S&P/500 is powered currently by the GAFAM : Alphabet (Google), Amazon, Facebook, Apple and Microsoft. The five companies that make up nearly a quarter of the index (composed of 500 u.s. companies).

With the exception of Facebook, they have passed the milestone of trillion dollars of market value (thousand billion) and is traded all at record levels. The rest of it ? It goes like this, like that.

The “investors” show a appetite for the securities that are called ” growth “, those who have the wind in the sails.

It’s a bit like the sausage Hygrade : the securities whose price will go up to attract buyers, which raise in turn the course of the action, which rameute other buyers. There comes a point where the values attributed to the companies have nothing to do with their financial results and growth prospects.

This is how bubbles are.

If it has not yet reached this point, we would approach it.

A new generation of small-time speculators

I put quotation marks to ” investors “, since a part of the activity comes from a new cohort of small-time speculators who trade shares as we play Candy Crush, with the help of phone apps (Robinhood or Wealthsimple).

Their favorite titles are those of the companies that I named above, which is also the one of Tesla, whose value defies gravity more easily than a rocket SpaceX.

For this new generation of investors, Warren Buffett is an old man passed. The approach of Buffett, the so-called ” value “, is to buy undervalued stocks of strong companies, and to retain them for a long time.

It requires work and patience, two virtues incompatible with the immediacy and ease that define the mobile platforms of investment.

In Canada, the securities that may meet investors in search of thrills are more rare. In this category, Shopify stands out, however. The Ottawa-based company provides the infrastructure to traders traditional you who want to start online, a niche, certainly, a carrier that is no justification for the explosion of 150 % of the value of the action since the beginning of the year.

No alternative

You can assign the performance of the markets than by the attraction exercised by certain large corporations in vogue.

At the bottom, are there other options to make your money grow ? Not really, the interest rates are almost zero, which favors the stock market.

Many investors who seek income are turning towards the securities of companies that pay dividends, a specialty of our banks, this has not impeded the recovery of the canadian Stock market in general (also helped by the gold).

According to Michel Villa, investors are also comforted by the belief that central banks (the Fed in u.s., the Bank of Canada, the european central Bank) will always be there to save them, which keeps them in the market.

What to do ?

Since everything seems to be going well in the Stock market although the prospects are somewhat reassuring, what could it so happen when the news will be good, to the discovery of a vaccine ?

The titles that eke out a living for months in the shadow of the GAFAM could suddenly regain the favour of investors. It could be done a kind of reversal, at the expense of the securities to the mode.

It seems that the time indicated in order to operate a rebalancing of the portfolio, that is to say, to sell a portion of what is earned value in order to increase its positions in the securities that were least well done.

This is the kind of household that he should do on the occasion.

With the months to be turbulent as it comes through, it is more vital than ever.

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