Winds Of Change

The biggest anomaly I see is the discount that safe stocks trade at compared to economically sensitive stocks. It seems like a no brainer to be in defensive stocks.

I wrote the above on February 25, days before defensive stocks began to massively outperform economically sensitive stocks. While my quote was timely, I was early in positioning myself in defensive stocks as I had been suffering in them for months prior. I had to watch economically sensitive stocks shoot to the moon while my holdings languished. Eventually, I was paid in spades but it was not easy to stick with my conviction as the market told me I was wrong every day.

We are now seeing the complete opposite as defensive stocks shoot to the moon while economically sensitive stocks languish. I am not very optimistic about the economy but at some valuation difference it makes sense to own software instead of consumer staples.

I am slowly shifting some of my exposure from more defensive, staple like companies to software. I realize that I am likely to be early again as stock market participants never learn and always take things too far. But I know that I will not be able to pick the exact turning point either. This does not mean that I don't believe defensive stocks have a place in one's portfolio. They still have a large place in mine. I am just now willing to have more economically sensitive exposure because the price is right. I'm also willing to part with my defensive holdings at the right price.

No comments: