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In a stock market that is tough to read like this one, there are plenty of “buy” and “sell” recommendations. But there aren’t many “hold” suggestions.
Yet the mixed messages being sent by market forces right now suggest that this is clearly a time when investors should practice their ability to hold.
In market parlance, a hold is better than a sell, but worse than a buy. Applied to a specific security or a market index, it means you’re sticking with it if you already own it, but staying out of it if you don’t.
It’s hold what you have, but hold off from buying more of it.
Holding sounds about as passive as possible, yet it’s an active decision to make in current conditions. The market flashes hold signals a lot — what Vanguard Group founder John Bogle described as “Don’t just do something, sit there” — but it isn’t the message being pushed on the public because there’s no action in it. Pepper a headline for a story, podcast or YouTube video about “what to do now” with “do nothing,” and you’ll lose your audience.
Given the frothy market and the scary financial headlines, investors are looking for buy and sell messages. They want to go to or avoid where the blood is running in the streets (banking), they want to find the safe haven against potential Federal Reserve miscues or abandon it for something better.
It makes for interesting discussions but can also short-circuit a portfolio.
As Whitney Tilson, chief executive officer at Empire Financial Research, explained on my podcast last week: “The market’s not screaming cheap, but it doesn’t strike me as hugely overvalued either. Eighty- to 90% of the time, the market is in-between. That’s the time when you just grind it out, most of what you own is a hold, you don’t want to be engaging in too much activity.”
You also want to be holding now because the more active investors have been doing their thing, particularly the sellers.
Carley Garner, senior commodity strategist at DeCarley Trading, said on my “Money Life with Chuck Jaffe” podcast that people are “way under-allocated [to stocks]. They’re buying up two-year Treasury notes
TMUBMUSD02Y,
and cash and those sorts of things.
“Eventually,” Garnder adds, “that money is going to have to go somewhere, so while the fundamentals to buy stocks aren’t particularly impressive, I’m not sure it matters. What matters more is positioning and money coming in from the sidelines.”
Once the sellers and the sideline-dwellers fear that they are missing out on the next rally, they are likely to improve the market for the holders; that process could then lead to better buying opportunities.
“ The U.S. stock market has been through all four seasons in the first three months of 2023.”
The U.S. stock market has been through all four seasons in the first three months of 2023 — getting off to a hot start, cooling just as quickly, facing the sudden storm of a surprise crisis but also watching the response to long-standing problems like inflation.
Jeff Weniger, head of equity strategies at WisdomTree Asset Management — in an interview on my podcast last week — noted that no one would have predicted last New Year’s Eve that “We’re going to walk into this New Year and there are going to be a few banks that go under — they’re not just going to be American banks, but we will have to smash Credit Suisse together with UBS
UBS,
UBSG,
— and we will see a bunch of credit-default swaps absolutely blow up and, at the same time, the NASDAQ
COMP,
will have something like its best quarter in three or four years.”
Hidden amid those mixed signals, the message that’s bigger than “Hold” goes like this: Don’t mess it up. Examine your holdings to make sure they are worth, well, holding. Let the investment strategy you have do its work; don’t jump from one set of tactics to the next just so you can say focused on the market’s few lukewarm areas.
Use the time when the market is unexciting to do the money-management tasks that aren’t glamorous, focusing as much on what you own and want to keep as what you might add or get rid of.
As an investor, you spend the bulk of your time holding, rather than buying or selling, so focus now on being an “active holder,” making sure you understand the role each investment plays in your portfolio, and that the reasons why something was a buy — the story that sold you on making the first purchase — remain intact.
Also, take advantage of rising yields to keep proverbial dry powder, letting your cash generate income while you wait for the market to flash a more-definitive signal.
The second quarter of 2023 is beginning with every predicted outcome for the year still possible. There are forecasts for soft and hard landings, for second-quarter bounces and downturns, for a new bull to start in the year’s second half or for the bear to really take hold then. The Fed has telegraphed its moves enough to avoid being a “wild card,” but the economy hasn’t signaled if those moves really will have their intended effect.
There’s a long way to go before anyone should feel confident in the forecasts being made now. It makes for great debates, but lousy motives for action.
Tilson noted that but “what really gets my heart beating is when other investors are panicking and stocks really sell off and there are bargains galore. That only happens every two- to five years, but two- to five years over an investing lifetime means you get quite a few of those opportunities.”
Between those opportunities, long-term investors hold. Now is one of those times.
Also read: Recession isn’t a guaranteed stock-market crusher, owing to this one truth about volatility and GDP
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