The selloff in the market since late September has started to raise a few cautionary flags. While today's action (Thursday the 25th) is hopefully the reversal we've been waiting for, we have started making a few portfolio changes.
For ALL accounts at www.folioinstitutional.com we have not made any changes. Our folios have held up well.
For portfolios at NFS: Utility and Growth strategies are unchanged. Dividend oriented portfolios have seen a sell in DIVY which could have represented as much as 20% of some portfolios. The function of DIVY is to add stability to the overall portfolio, and to be a source of money to reallocate if the market dictates or an opportunity arises.
Over the next week expect to see the proceeds reinvested. On Thursday the 25th we have reinvest 25% of the DIVY proceeds into CAT - Caterpillar. You may have heard that the stock has been a little beaten up recently. A lot has been made of the stock market being overvalued. There are several metrics used to determine proper value. One of the oldest metrics is called a PEG ratio, and used by the legendary Benjamin Graham back in the 1920's. Graham proposed buying stocks with a PEG ratio below 1. Understand that over the recent couple of decades this metric has received much criticism because if you stuck by it, you would have a hard time owning any stocks, as almost no stocks had a PEG below 1. Nothing was that cheap. CAT has a PEG of about 0.5! Solid cash flow and a dividend of about 3%. I can't say no at this time. The market may go lower, but in the long run this looks like a rare market opportunity.
If the market continues higher we will be looking for similar bargains in the days ahead, specifically ways to get more dividend yield into the portfolios. If it heads lower we will be raising a limited amount of cash. As of today we are still a long way away from significant selling or hedging in our accounts.
* Peg ratio = Price to Earnings ratio (PE) / Growth Rate (G)