Keep Your Portfolio Out of the Operating Room

I was prone to stomachaches in college, so I often shrugged them off...

But on an otherwise normal day, I had some of the worst gut pain I'd ever experienced... so I headed for the hospital to get checked out.

Everything about my visit was routine. A nurse took my pulse, then my doctor gave me a standard exam.

Then he said something that completely took me by surprise... that we should do nothing for my stomach pain.

I was taken aback. Were my symptoms not severe enough to warrant some sort of treatment?

I pressed my doctor for more information, so he detailed an alternative, more aggressive plan. I could get a scope – an invasive procedure... and there was a chance something could go seriously wrong.

That's when he added one of the most memorable insights I've ever heard, in medicine or anywhere else...

"Sean, I may be a doctor. But I'm also a minimalist."

Time proved him right – the stomachache subsided in a few days. And that lesson stuck with me. My doctor's minimalist approach applies to a lot in life... and especially to investing today.

Market volatility is rampant, and the pain is very real. It may feel like the only option is to sell right now before things get worse.

But instead of getting aggressive with your portfolio... it may be time to do nothing.

Let me explain...

Last Monday, JPMorgan Chase issued an eyebrow-raising warning to investors. It cautioned that selling stocks right now carries too much risk.

While this may sound like the opposite of what you'd expect, there's sound reasoning behind it...

One way we can unpack JPMorgan's message is by observing the CBOE Volatility Index ("VIX"). This indicator measures fear by looking at expected volatility over the next 30 days.

When the VIX is low, it means traders expect the market to chug along with no surprises... But a rising VIX means investors are fearful of big swings ahead in stocks.

Since 1990, this index has had a median of 17.6. But today's reading is 33.3... the highest we've seen since the beginning of 2021.

This may seem like a flashing signal to head for the exits. But it's not that simple...

In March 2003, a five-year bull market started. The VIX was at 33.6. And at the bottom of the housing crisis in 2009, the VIX was at 50.2.

The VIX peaked at 82.7 during the COVID-19 drawdown. And the bottom was only eight days later.

All this inconsistency is because the VIX is a backward-looking measure. If you could predict spikes in it and sell before they happen, you could beat the market...

But the thing is, the VIX shows uncertainty that traders have already factored in.

A heightened VIX is not a reliable sell signal. In fact, it often indicates a market bottom – the environment in which you want to buy stocks.

Now, I'm not advocating buying stocks today. But if you sell due to the current market mood, you will be acting on sentiment. And when you want to get back in, you will have to act on sentiment a second time...

So the odds of something going wrong are twice as high... Or as JPMorgan warned last week, selling stocks right now is too risky.

Still, if you're feeling uneasy about today's uncertain market, I do have some suggestions for you...

Stick to your investing plan and keep your time horizon long. If you do those things, then you won't need to act on any short-term shake-ups. You'll be in control, reducing your margin of error.

I know the world is uncertain, and that investor pain is excruciating right now. It's an extremely tempting time to doctor your portfolio...

But I urge you to embrace your inner minimalist instead. Now is a great time to do nothing.

Good investing,

Sean Michael Cummings

Further Reading

"When times get tough, our intuition tells us to do more," Steve writes. But as an investor, doing more can be one of the worst things for your portfolio... Get the full story here: Now Is Not the Time to Tinker With Your Investment Strategy.

"The market has a certain feel to it," Matt Weinschenk says. Investors are always driven by fear and greed. And when you're looking for what's coming next, that's usually more important than any number or chart... Learn more here.

Market Notes
HIGHS AND LOWS

NEW HIGHS OF NOTE LAST WEEK

AbbVie (ABBV)… pharmaceuticals
Palo Alto Networks (PANW)… cybersecurity
Travelers (TRV)… insurance
Lockheed Martin (LMT)… “offense” contractor
Raytheon Technologies (RTX)… “offense” contractor
Northrop Grumman (NOC)… “offense” contractor
Viper Energy Partners (VNOM)… oil and gas
Cheniere Energy (LNG)… natural gas
Mosaic (MOS)… fertilizer
Nutrien (NTR)… fertilizer
Steel Dynamics (STLD)… steel
Altria (MO)… cigarettes
Hershey (HSY)… “Global Elite” chocolatier

NEW LOWS OF NOTE LAST WEEK

JPMorgan Chase (JPM)… financial giant
Citigroup (C)… financial services
MasTec (MTZ)… 5G infrastructure
Alibaba (BABA)… Chinese e-commerce platform
Match (MTCH)… online dating
BorgWarner (BWA)… auto parts
Manchester United (MANU)… soccer