Two things I will probably reiterate on this site a lot:
- Have a Plan
- Connect information (from macro to micro)
I mentioned in my last post that Apple and Alphabet both had good quarters. I sold Alphabet the next day pretty close to the peak. Apple I intended to sell today and even posted it for sale. But even with good news it never really rallied like it did in yesterday’s aftermarket. And what I am really fearful of, is the macro environment – stock prices are just too high! Here’s a chart of the P/E ratio of the S&P over time.
(courtesy of S&P 500 PE Ratio – 90 Year Historical Chart)
As you can see, stocks in general are near the historical top of their range. And that is scary.
But also note that the Fed is being very accommodative. And they have literally pumped in trillions of dollars into the market and that extra money has to be put to work somewhere.
So you have these two opposite forces at play – one working towards a correction and one (or more) propping up valuations.
This is a hard time to make money. You probably have some upside in the market and with individual stocks. But that upside has a potential huge downside – especially when you play in derivatives (ie. options – which are my usual poison). I much prefer to buy in times of turmoil – that takes guts and willpower (especially if things continue to sink) but it’s much easier to digest if you have a plan.
But, getting back to my 2nd point – connecting information – when you buy stocks, know your stocks. But also know about the macro environment. I still think Amazon, Apple, and Alphabet are great stocks. But, this may not be the best time to own them. Amazon reported good results tonight. And I believe it could run to $4000. But I am going to sell it and Apple tomorrow (or at least pare down my exposure) because the macro environment is concerning. Alphabet, around $2400 is pretty fairly valued and I will likely nibble in at $2200 or if I hear new news. Same with Amazon – I will sell tomorrow but may nibble in again on a retreat.
I may be right or may be wrong. But, I have heard the results and have a plan. After I connected the dots.