2013 was catalyzed by great home sales and growth throughout almost all major sectors. The year wrapped up with the Fed announcing that it was starting to cut back on its bond buying program, signaling to investors that the economy was on its way back to being healthy on its own. Stocks ended 2013 on a euphoric high. I, like many other contributors and bloggers reminded investors that had cashed in over the last 5 years to take a look at potentially rebalancing their portfolios to err a bit more on the side of caution heading into the new year.
There's no doubt that 2014 has started off a little bit differently than the year that's just past. Call it a correction or the beginning of the end, our bull market has lost a little steam opening up this new year, and has started with one of the worst Januaries in the last couple of years.
Regardless of what it does to the markets, I'm a supporter of the Fed continues to exit its taper. As an Austiran economics guy, I want as little government intervention as possible with the financial markets. I do, however, live in reality, and can embrace a small amount of the "steadying of the ship" that the Fed has provided. I realize I won't likely win this ideological argument in my lifetime, sans the end of the dollar or something catastrophically proving me right while bankrupting the general public.
So, how do we proceed in the midst of a little uncertainty to start the year? It's likely that most investors have rebalanced - or at least considered rebalancing - their portfolios at the beginning of this year. I did the same.
I wanted to rebalance and keep myself safe and hedged heading into this new year by doing a couple of things. I lined the foundation to my portfolio with diversified dividend stocks like Potash (NYSE:POT), One Liberty Properties (NYSE:OLP), Intel (NASDAQ:INTC), Bank of America (NYSE:BAC), Alcoa (NYSE:AA) and Aflac (NYSE:AFL). These are stocks that I think have long-term potential, but even if they pull back during the coming year they'll offer steady dividends. I've seen gains in some and modest pull backs in others to start the year - I don't watch these guys too much on a day to day basis.
I also made a few more speculative buys, like General Motors (NYSE:GM) warrants, Michael Kors (NYSE:KORS), Pacific Healthcare Organization (OTCQB:PFHO) and BlackBerry (NASDAQ:BBRY) - all four of which I'm currently long. I added to my GM position to end the week last week, and again to start the week this week after the company's January sales numbers.
I've hedged in a couple of different ways - so far, between hedging and my short term trades, I've been able to post gains near 10% for the year so far in the midst of the uncertain market. I've bought silver (NYSEARCA:SLV) in additional to the metals that I currently hold physically. Additionally, part of my hedging strategy is to hold short companies that I think are fundamental flawed, as well as susceptible to macro market pullbacks. I'm currently short companies like Yelp (NYSE:YELP), Pandora (NYSE:P), Herbalife (NYSE:HLF) and Questcor Pharmaceuticals (QCOR). These shorts act as both fundamental bets on the company's future, and major market hedges against panic and volatility.
Of course, my short term strategies remain the same - week to week trades, options spreads on binary events, scalps - whatever opportunities I see coming and going on a day to day basis. In the past I've written articles like "5 Investing Tricks of the Trade for Your Arsenal", which describe some "alternate" ways of short term investing that I use occasionally.
Additionally, I have a majority portion of my savings in CD's that I can roll over and various FDIC insured accounts that accrue (minimal) interest.
It's as good a time as ever to take a second glance at your portfolio this year, if you haven't done so seriously yet. Remember, at first, nobody expects a bear market to simply "happen" - it's generally some type of surprise. So, you need to make sure that your portfolio is ready for any possible disaster. There's a reason that every investing article since the beginning of time stresses both occasional rebalancing and diversification - because it works.
I'm trying to keep my wits about me heading into 2014 and hope you're doing the same. Remember, it's much easier to be prepared for any possible situation and cash out accordingly as the needle moves in that direction than it is to try and guess where the markets are heading. I remain more to the long side in my portfolio because I do believe we will see 3-7% gains for the year on the major market indices after we settle through this current correction.
Best of luck to all investors.
Disclosure: I am long AA, GM, OLP, AFL, SLV, BAC, INTC, PFHO, BBRY, KORS, KORS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am short QCOR, YELP, P, HLF