“Déjà vu all over Again?”

These words were most famously spoken by long-time New York Yankee Yogi Berra, who had a unique ability to add an endearingly incorrect spin on clichés. They were less famously spoken by me, just now.

Here we are again, knocking on the door of Dow 14,000 and investors’ emotions are running high. We are starting to hear the same excited chatter on “the street” about what’s going on with the stock market – the first few weeks of 2013 have seen record inflows to equity mutual funds and ETFs. That alone doesn’t scare me – in fact, that’s a very positive sign and confirms our assertions from late 2012. A woman who works in the next office who “knows a lot about the stock market” just told me how well her accounts have been doing.  Now that scares me. It scares me because I remember similar conversations with similar people just before the bottom fell out. We have been here before, haven’t we?

Actually, my belief is that this is not déjà vu all over again – I contend that we have not been here before. The first time the Dow approached 14,000 was 2007 and everybody felt rich and indestructible, like Leonardo di Caprio in Titanic (towards the beginning). Today most Americans are feeling more like his character at the end of the movie. So much wealth has been lost in home values, 401k plans, and the losses of jobs/incomes. We are fragile and humbled. Yet the stock market doesn’t seem too concerned. How insensitive for it to keep moving higher despite all the things that could still go wrong! Are these stocks not reading the news??

To be clear, my optimism in the intermediate-term has not waned. But when the stock market runs up as fast and furious as it has the past month, and when people who typically don’t even open their monthly statements start to get excited…..increased caution is warranted in the short-term.

Ok, so what are we doing?

We are trimming some of our equity positions, in particular those that have appreciated the most in the past five weeks. But what about tax consequences on the capital gains, you say? Well, we can specify tax lots to ensure we are selling shares that have been held longest – ideally, those qualifying as Long Term Capital Gains. Of course, if a client has tax losses carried forward from prior years, or we are talking about a tax-deferred retirement account, this is a “moo point.”

It’s not that we “don’t like” these investments anymore, it’s just that things don’t go up in a straight line – and when they do, it’s temporary. We are willing to forfeit a little more upside in favor of locking in some gains today. We also feel there is a good chance we’ll be able to buy back in at slightly better prices in the not-too-distant future. In other words, it’s a good time to regroup, reflect, and rebalance.

The challenge with rebalancing in today’s market is that there aren’t too many other asset classes that look equally appealing. For now, we wait, and we do so with a little cash on hand….

Have a great week!

Adam B. Scott
Argyle Capital Partners, LLC
www.argylecapitalpartners.com
10100 Santa Monica Blvd, #300
Los Angeles, CA 90067
(310) 772-2201 – Main
(310) 496-2822 – Fax