• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

Now Is the Time to Play Defense

Remember, though, playing defense is very different than leaving the stadium altogether.
By JIM COLLINS
Dec 19, 2018 | 04:31 PM EST
Stocks quotes in this article: AMZN, AAPL, JNJ, KHC, T, FB, NFLX, GOOGL, TSLA

Well, that's it.  FOMC Chair Jerome Powell and his band of merry men and women just brought an end to the "Longest Bull Market in History."  Technically, that run will not end until the S&P 500 hits 2,345 -- down 20% from the all-time closing high of 2,930.75 it reached on September 20 -- but the S&P's recent plunge to 2,500 has been definitive.  It's over.  It was fun while it lasted, but now it is time to play defense.  

Remember, though, playing defense is very different than leaving the stadium altogether.  I am not advocating the strategies espoused by the parade of idiots who fill my email inbox with investing come-ons designed to spread fear.  I am not talking about any conspiracy theories, nor am I advocating that you follow the strategies espoused by the crackpots who spread them.  The world is not ending, and I don't believe the global economy is even heading for a normal recession.  But it is clearly slowing, and against that backdrop stocks just do not offer enough risk-adjusted return to justify not owning bonds.  That represents a complete reversal -- linguistically and strategically -- of the situation that prevailed for the past eight years.

So, don't dump all your stocks, don't grasp for "hard" assets like gold (which is also down significantly in today's post-Fed trading,) just show some common sense.  If your portfolio has been entirely composed of stocks you should change that. Today. Buy some bonds and go towards a classic asset mix.  I will not bore you with the academic arguments surrounding optimal portfolio construction, but I believe it is too late in the cycle -- and the Fed is too hawkish -- for a classic 60/40 stock/bond asset allocation.

At Portfolio Guru, LLC I have had my clients completely out of the S&P 500 for months now, but I can't tell you how many potential client portfolios I have looked at in the past six months that were entirely composed of U.S-listed stocks.  That dog will not hunt anymore.  Like Al Bundy did with footwear, I would like to put your assets in something comfortable and yet classy, so let's go with a mix of 40% stocks and 60% bonds.  

What to sell?  Well, that's where the taxman comes in.  Santa Powell did not deliver this year, so if you have losers in your portfolio, start there.  According to Bespoke Research, 55% of S&P 500 stocks have fallen at least 20% from their 2018 highs and 44% are down at least 25%.  While it is a given that every person who approaches me at cocktail party will have bought Amazon (AMZN) at $180, Apple (AAPL) at $60, etc., in the real world it is likely that you have some capital losses to harvest for tax reasons.  Do it!  

In terms of sectors, financials are the least attractive at this moment, as the yield curve has flattened dramatically today and is now threatening to invert.  You might assume some of the classic defensive sectors--food, pharma, consumer products--will offer protection against a bear market, but J&J's (JNJ) move this week shows that is no panacea.  Other supposedly defensive names like Kraft Heinz (KHC) and AT&T (T) have been absolute dumpster fires.  Energy stocks are just absolutely despised as a group, so despite another report full of positive news on oil fundamentals from the EIA today, you need to--as I mentioned in my RM column Tuesday-- exercise discretion with your investments in oil and gas.  Utilities and REITs have some appeal if interest rates continue to decline, as I believe they will.

But what of the market leaders?  The so-called FAANGs--Facebook (FB) , Amazon, Apple, Netflix (NFLX) and  Alphabet/Google (GOOGL) .  While I do agree with Snoop Dogg that there ain't no party like a West Coast party 'cuz a West Coast party don't stop, I am firmly convinced that the party is over for the stocks of the West Coast tech titans.  Watch levels here, because if AAPL breaks $160 and AMZN can't hold $1,500 there is massive downside for those two names.  Facebook is just completely univestable owing to its seemingly unending stream of revelations of data privacy issues and Alphabet's Google has similar difficulties.  At least those four stocks have strong balance sheets, though.  I believe debt- and content liability-laden Netflix could drop at least 50% from today's levels, and I have to mention Tesla (TSLA) here as another tech titan with a lousy balance sheet and a valuation that is at least 50% too high, by my calculations.  

Fed days are always eventful, but if you listen to the markets you will take risk off the table--and out of your portfolio--heading onto 2019.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication Collins had no position in the securities discussed.

Jim Cramer and the AAP team hold positions in Amazon, Apple, Facebook, Alphabet and Johnson & Johnson for their Action Alerts PLUS Charitable Trust Portfolio . Want to be alerted before Cramer buys or sells AMZN, AAPL, FB, GOOGL or JNJ? Learn more now.

TAGS: Investing

More from Investing

Emergent BioSolutions Turns Bearish, So Beware

Bruce Kamich
Mar 4, 2021 8:27 AM EST

A break in a key support level could precipitate further declines in the life sciences company's shares.

Steepening Yield Curve, All-Star Stocks Beatdown, Fed Speak, S&P Rally?

Stephen Guilfoyle
Mar 4, 2021 7:23 AM EST

Smaller to mid-cap names have fared somewhat better than large cap tech, but make no mistake... there is a circle of life/death here.

Jim Cramer: Playing the Relative Investing Game

Jim Cramer
Mar 4, 2021 6:41 AM EST

Investing can be fun until it turns brutal for what seems to be no reason.

Corrective Action Continues as Support Levels Fall

James "Rev Shark" DePorre
Mar 4, 2021 6:24 AM EST

Dip buyers have lost confidence as selling momentum builds.

With This Market, It's One Way, or the Other

Helene Meisler
Mar 4, 2021 6:00 AM EST

Let's look at this either/or market and why investors are complacent and ... getting angry.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 07:59 AM EST PAUL PRICE

    Fabulous News on United Natural Foods (UNFI)

    The major potential risk factor for , its contrac...
  • 08:50 AM EST PAUL PRICE

    Michaels: Close to a Deal?

    It appears that a deal could be announced soon. ...
  • 08:34 AM EST GARY BERMAN

    Wednesday Morning Fibocall for 3/3/2021

    SPX (Long-Term View) The 20 DMA @ 3889 with the ...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login