When is it Good to be a Scrooge?

December 24, 2009by Kevin Painter0

So Andy Williams, Warren Buffett, and Ebenezer Scrooge all board a flight to the North Pole for Christmas…

In the words of the wise and prolific Andy Williams, it’s the most wonderful time of the year.  The stock market is up over 60% from its low on March 9th, and the economy posted record growth in the third quarter thanks to Cash for Clunkers and a rebounding housing market.  With this news, investors are whistling Christmas carols and looking for a happy start to 2010.  Yet this may be a good time to say “Bah Humbug!”, and sell some of your stocks while others are buying.

Warren Buffett tells us to be greedy when others are fearful and fearful when others are greedy.  Those investors that stayed the course or put additional money to work back in March have been pleasantly rewarded.  But how many of those investors are selling this rally and reallocating their portfolios?

Here are some reasons that being a Scrooge as the market hits new highs for the year is smart:

  1. Need for Cash If you’re thinking about a New Year’s vacation or buying some holiday presents, it could be a good time to take some profits off the table.  A need for cash can be the easiest time to determine when to sell some investment assets.


  1. Time to RebalanceThe recent market rally was a rising tide that lifted all ships.  Precious metals, and many stocks, bonds, and mutual funds have all risen substantially this year.  If you resisted the temptation to sell out of the markets in the past twelve months, you’ve likely been rewarded.  This may be the perfect time to realign your investments with your target allocation, throttle back the risk in your portfolio, and make sure that your holdings are in line with your financial goals.


  1. Risk, the “Ghost of Christmas Yet to Come” During periods of extraordinary returns, (2009 is a prime example) investors can lose sight of the risks they’re taking with their investments.  No longer are stocks trading at “day after Thanksgiving” sale prices.  That ended in April of this year, and the S&P 500 has increased 62.5% since then.  How long will it take to go up another 62.5%?  More importantly, how much risk will investors have to take to achieve those types of returns?

With high unemployment, deficit spending, and tight consumer credit looming in 2010, the markets face significant challenges to sustain this current rally.  As perhaps both the most important, and most ignored, factor in selecting investments, it’s vital to understand the risk of the holdings in your portfolio.  Portfolio performance should always be evaluated based on risk-adjusted return to measure the amount of risk it took to achieve that return.

So whether the need is for cash flow, rebalancing, or reducing risk, “heed the greed” of Christmas past, and hedge the Ghost of Christmas Yet to Come.  You may be able to secure some profit, while at the same time reducing risk going forward.  And that, Margaret, is how we make sure Santa will come next year, too.

Disclosure: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. All indices are unmanaged and investors cannot invest directly into an index. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25 percent of the total market capitalization of the Russell 1000 Index. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin.

Authored by Kevin Painter and Andy Oakes at LeConte Wealth Management, LLC.

© 2009 LeConte Wealth Management, LLC.®

Kevin Painter

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