We’re on the way to the top.
We’re nearly there…
But not just yet.
There’s still a little ways to go…
But two stories today show us why the top, while not here yet, isn’t far off.
We’ll explain what we mean below…
Not in the Ninth Inning Yet
As a regular Daily Cut reader, you’ll know we’ve recommended giving your portfolio a trim.
Don’t sell everything… and don’t sell a lot… but sell some.
Oh, and try to time the market too much. Market timing isn’t the point of this exercise.
Just make a point of selling a bit here and there. Maybe you pick one stock each Friday and sell 20–30% of it. The next week you pick another stock… and so on.
Let’s say you do that for two or three months. That’s a gradual reduction in your market exposure without panicking.
If the market keeps going up – which wouldn’t surprise us in the near term – you get to bag a few more gains. If the market falls in the short term (which also wouldn’t surprise us), you’ve perhaps locked in some gains at a higher price.
Nice.
Anyway, you get the point. With the proceeds from those sales, you stick a bunch of it away in an interest-bearing account and take a small portion to put in more speculative trades. Or if you prefer options trading, that’s another good way to profit from a moving market.
But back to those news stories that show us the market is reaching the ninth inning of this bull market. The first comes from the Financial Times:
Nvidia’s market value rose past $3 trillion to overtake Apple on Wednesday as the world’s second-most valuable company following a year of incredible growth driven by demand for its artificial intelligence chips.
The U.S. chip designer’s shares rose about 5% to push its market capitalization ahead of Apple for the first time — ending the day at $3.01 trillion, according to Bloomberg data, marginally ahead of Apple’s $3 trillion. The iPhone maker lost its spot as the most valuable listed company to Microsoft this year.
Today, Nvidia (NVDA) trades around $1,200. Yet, you couldn’t blame an Nvidia investor for selling when it hit $600 or $700 or $800 or $1,000… as it did at various points over the past few months.
And no doubt plenty of folks are majorly annoyed they didn’t buy at $600 or $700 or $800 or $1,000… as they could have done at various points over the past few months.
To that we say, ho-hum. Don’t fret about it.
Nvidia has a $3 trillion market capitalization based on revenue of $60 billion last year. Microsoft (MSFT) has pretty much the same market cap for more than three times the revenue.
That must make Nvidia over-valued, right? Not necessarily. Investors are betting on earnings continuing to grow. At the current growth rate, Nvidia’s revenues could pass Microsoft’s within the next year or so.
Will that happen? We have no idea. But what we do know is that we wouldn’t bet our house on it… and we wouldn’t bet our house on the rest of the market that has benefited from this long, long, long bull market rally.
That brings us neatly to the second story that came across our desk this morning. This time from Bloomberg:
Jim Chanos quit after failing to raise capital. Carson Block’s firm launched its first long-only fund. Andrew Left dubbed his kind “a dying breed.”
These are bad times to be a bear on Wall Street.
After taking hits on multiple fronts, short sellers — who borrow and then sell stocks in a bid to profit from price declines — are in retreat. Thank the gravity-defying bull market, lingering regulatory threats, a day-trading horde randomly squeezing shares like GameStop Corp. ever higher, and more.
[…]
Chanos announced late last year he was converting his hedge fund into a family office after almost four decades. The lack of interest among investors to put cash into a bearish strategy meant the fund “just wasn’t covering the overhead costs,” he says. Assets had dropped to less than $200 million from over $6 billion in 2008.
Is this a sign the bull market is over? Again, not necessarily. It probably isn’t a sign… and the bull market probably isn’t over… yet.
But these stories are enough to raise a concern or two. That’s why we recommend taking a slow and steady approach to downsizing your market exposure.
It’s rare for folks to think about this kind of thing sensibly and calmly. Many investors will throw up their hands and sell everything… worried stocks are about to crash, only to see them double or more in short order.
Others won’t think about it at all… until after stocks have crashed. Those folks will then wait years before getting back in having missed out on the market’s early gains.
Our message is simple. Don’t be like those investors. Take the sensible and calm approach instead.
We’re not at the bottom of the ninth inning of this bull market yet… but we’re approaching it. So it’s a good time to start preparing.
Cheers,
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Kris Sayce
Editor, The Daily Cut