- Laszlo Birinyi is taking a cautious approach to the stock market, even as it attempts to recover from the coronavirus-driven slump.
- In a recent client letter, he explained why he does not expect a so-called V-shaped recovery and shared seven nuggets of advice for managing portfolios at this time.
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Laszlo Birinyi is one of the most steadfast bulls on Wall Street.
But these days, “cautious optimism” is how he describes his investing approach.
The president of Birinyi Associates was relieved to see the stock market’s bounces this week after the coronavirus pandemic triggered the S&P 500’s fastest 30% decline in history. But he saw the so-called relief rallies as opportunities to sell — advice that his clients may not have received just a few months ago.
Birinyi is skeptical of the stock market’s attempts to rebound because the economy’s recovery is still very much in doubt, and there is still no concrete response to the outbreak. And his views are worth heeding, since he nailed his predictions throughout the 11-year equity bull market, including calling the bottom in March 2009.
There’s no shortage of evidence to back up Birinyi’s concern: First-time unemployment claims are at historic highs, entire industries are pleading for federal bailouts, and Congress is in the process of authorizing direct deposits that would replace lost income for millions of Americans.
All this is in addition to the fact that the daily rate of new coronavirus infections — represented by the widely touted curve — is still not slowing in the US.
Beyond the economic fundamentals, Birinyi is taken aback by the market’s whipsawing in recent days.
The swings are indicative of how much uncertainty investors face. Take March 20 for example, when the Nasdaq was at its 5% limit up in premarket trading but ultimately closed down nearly 4%.
“Based on all of the above, investors should not even entertain the idea of a V-shaped recovery and the thought that the market will bottom before the economy or before the virus is, we think, wishful thinking,” Birinyi said in his monthly newsletter to clients.
He further outlined seven ways his firm is managing its portfolios in light of their expectation for more volatility.
- Do not make any dramatic moves unless forced: A “keep calm and carry on” approach to your portfolio is advised even if, like Birinyi, you’ve managed to lose less than the market during this period.
- Stay away from market analyses and commentary if possible: This crisis has no parallels to history, according to Birinyi.
- Sell certain winners: Look for the weak link in your portfolio. This could be a stock that previously performed in-line with the market but is now on the verge of becoming a loser.
- Sell stocks that are less than 1% of your portfolio: They’re unlikely to move your performance needle on the way up or down. So focus on names that matter.
- Avoid virus “plays”: He said his cursory look at some lists of stock recommendations showed that the gains are usually concentrated in a few names.
- Do not buy exotic exchange-traded funds: For example, an ETF that buys stocks with high dividend yields will purchase more during a sell-off. That’s because dividend yields increase as stock prices go down. And soon enough, the ETF will lose value as well.
- If you must, buy individual stocks: AMD, Adobe, and Broadcom are a few tech picks that Birinyi singled out as bargains.
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