Is it good to partial cash out when market is at greed level, as long term investor, to rebalance the portfolio?
Someone asked something interesting and my answer is...
Someone asked “Let say one was fully vested during market correction or crash, will one do some partial cash out when market is at greed level as long term investor to rebalance the portfolio?”
Answer:
What you are asking, is more difficult than being partially vested – and not fully - during the recent market crash.
What I mean?
I mean that seeing the crash dynamic due to black swan type-coronavirus disaster, was relatively easy. Why?
Because you could see the ‘fundamentals’ of the crisis: increased COVID-19 cases, first in China, then in Italy, then rest of Europe, then America... Those didn’t happened in a day, happened from February till April. So you (I mean anyone) could see the dynamic of the crisis, and you knew that what happened in China (virus spread > lockdown > recession of economy), happened after a while also in Italy and Europe, and you knew that after a while will happen in America. So there was a repeated ‘fundamental’ play and common ways of the crisis handling… and those, could helped anyone to decrease his exposure in stocks timely. If he didn’t do it (during the crisis), was because of fear. He ignored the crisis repeated ‘fundamentals’ and stay fully invested.
Now, you are asking if it is good to cash out partially and rebalance your portfolio. But now the market has already recovered a lot. So you are asking to do this, in a market that is already ‘high’. You cannot know if the timing is good. Because the market may keep going up. You are talking about take some action in a short time horizon, and the market movements in short-time horizons, usually are unpredictable. You don’t have some strong ‘fundamentals’ as you had during the crisis. And the crisis didn’t last two weeks; it lasted about two months.
In the first case, you had some ‘fundamentals’ to follow but you didn’t; now, in the second case, you want to make an action in short-time horizon, based on what?
The market now, seems to be in accumulation mode. And which specific stocks to sell and why?
With all these, I mean that this action you are thinking to take, is much more uncertain and risky than having reduced your exposure during the crisis. It’s risky, you are no longer based on ‘fundamentals’; you are based mostly on luck (the chance the market to plunge again).
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