Managing Your Portfolio During the Bull Run of a Lifetime
Since 2009, we have seen a significant number of improvements on the key stock indices. The returns are nothing but exuberant, and some have called this the bull run of a lifetime. The S&P 500 has increased 150%, and the Dow Jones Industrial Average and the NASDAQ Composite Index have shown similar returns as well. But best of all, some companies on those key stock indices have shown even better returns—the 150% gain appears to be very miniscule when compared to their returns.
For example, consider priceline.com Incorporated (NASDAQ/PCLN), a well-known online travel company. In March of 2009, when the key stock indices made their bottom, it traded close to $72.00. Now, the company’s stock trades above $1,000; this is an increase of more than 1,288% in a little more than four years. It is outperforming the performance of key stock indices by more than eight times.
This is just one example; there are many more companies on key stock indices that have shown great returns. Look at Sotheby’s (NYSE/BID), an auction company, which traded at close to $6.00 in 2009; the same shares now trade for more than $48.00.
What’s the point of all this?
When it comes to investing for the long term, investors need to know how their portfolio is performing compared to the overall market. The reason for this is that it gives them an idea about what they need to do to their portfolio: should they readjust? Drop the losers? Or maybe go look for the new stars?
If we assume that what we have seen since 2009 is one of the best bull runs in the key stock indices, then investors should definitely assess their portfolio and see its relative performance.
If an investor’s portfolio is lagging and not on par with the return of the key stock indices, then they can look for the reason. What this will do is identify the holdings in their portfolio and help them come up with a better decision on what to do.
One way they can deal with the lagging positions in the portfolio is by outright selling them. Why would you want to keep betting on a stock that hasn’t increased in one of greatest bull runs in the history of the key stock indices?
Another way they can deal with lagging holdings is to question their profitability in the future. During the last four years, a company may have had hurdles, but going forward it may be getting orders from customers, or the conditions in general seem to be improving.
But what should investors do with those holdings that have shown great returns so far?
For the companies that have provided a boost to the portfolio, investors should look into taking some profits off the table after strengths. The reason for this is that if you are investing for the long term, the idea is to make money. By doing this, your worst-case scenario is still profitable and you are still carrying the position forward, but with less exposure. That way, if it declines from there, the losses won’t be huge.