Every investor knows the stock market does not appreciate uncertainty. With 69 days to go be for the inauguration, it is difficult to see any path forward other than one filled with uncertainty. With the market as high as it is and the current administration slow-walking the transition, it seems prudent to protect capital. In addition to the rough transfer of power, an even more disturbing activity is the recent replacement of high officials in the defense department. What is going on? Since I don’t have an answer, I want to prepare for the worst and here is what I plan to do over the next few days.
To protect capital we have a few paths.
- Use options for those who have expertise in this area.
- Sell out completely and go to cash or a short-term treasury such as SHV.
- Sell the market short.
- Set tight Trailing Stop Loss Orders (TSLOs).
Of these four options, and there may be more, my two favorites are to go to cash/SHV or to set tight TSLOs. In nearly all portfolios I have TSLOs already in place and I plan to let those run until they expire. Many will need to be reset as they expire before January 20, 2021. There is one portfolio that will run in place and that is the Bohr. This portfolio was recently moved over to Vanguard and Vanguard does not provide a TSLO option.
Over the next few days I plan to go through each portfolio and set TSLOs in the range of 3% to 6%. This is tighter than the normal 8% to 10% I generally use for most equity ETFs.