It was a wild first quarter marked by strong downward market pressure and huge volatility. The media talking heads seem to gradually be coming to the general consensus that the market has bottomed. Obviously, there are no guarantees, but I tend to agree we have probably seen the worst, and I am positioning my portfolio accordingly.
I intend to keep my cash positions low and my long positions high. I think stocks are the place to be right now. I don't necessarily expect the market to be up huge everyday, and I don't necessarily think it will be up huge over the next quarter. However, I do think we have probably bottomed, and I expect a general upward trend in stocks over the coming quarters (as opposed to the downward trend in stocks that we have seen over the last two quarters).
I like selective financial stocks ON THE DIPS. Financials have demonstrated HUGE volatility over the last six months. I expect this to continue because of the never-ending stream of doomsayers in the media, and I think it will provide a great opportunity for long term investors to buy in on the dips.
As frequent CNBC guest Dick Bove likes to suggest, the broker banks are trading at once in a generation discounts. He categorized Goldman Sachs' recent prediction of over one trillion dollars in write-downs as an insignificant portion of the total credit market. CNBC host Dylan Ratigan was wondered how long it will be before we start seeing write-ups instead of write-downs. I seriously doubt we'll be seeing write-ups anytime soon, but I do like the financials right now.
I like technology stocks because they are historically strong performers coming out of troughs in the business cycle. I think companies like Apple (AAPL) and Google (GOOG) are becoming very attractive as they both continue to generate very strong revenues and they are both down significantly more than the market over the last six months.
From a risk standpoint, I continue to believe in the importance of diversification. Aside from assembling a diversified group of US stocks, I have also allocated a portion of my investments to global developed markets (mainly Europe via an ETF and multiple stocks with global operations), emerging markets, agricultural commodities (I believe the recent appreciation is a long term trend), metal commodities (gold and aluminum), and energy (heating oil and light crude).
Overall, many investments are looking cheap to me right now based on our current market environment. Let's hope for a reversal in the recent downward market trend, and a great second quarter 2008!
Disclosure: Author owns shares of Apple and Google.