3 Factors That Factor Into My Portfolio Positioning for 2020

I hope the entire Real Money Pro community had a relaxing and joyous holiday spent with friends and family. It continues to look like 2019 will be one to remember for investors as the major indices make one new all-time high after another as we head into year-end. In my last few columns I have recapped the year and also offered up some thoughts on what 2020 might look like for investors. In summary, no one should expect the same type of performance in equities we saw in 2019. My base scenario is that stocks advance in line with earnings growth in the year ahead, which means most likely a percentage return in the mid-single digits. I also see the potential for one if not more significant declines sometime during the year. Given that, how am I positioning my portfolio in front of 2020? Three things stand out. Raising Cash: At the beginning of 2019 there was little cash in my portfolio as I had used almost all my dry powder buying the huge dip in the stock market in the fourth quarter of last year. It was a bet that paid off in a big way this year. However, as my buy-write positions initiated back then expired almost entirely in the money this summer and I have culled some profits in recent big winners such as Intra-Cellular Therapies , my cash position is up to 22% of my overall portfolio. I anticipate that figure to grow to almost 30% at option expiration in January. Mitigating Risk: As 2019 comes to a close, I feel like a boxer in the 10th round of a 12-round fight who is comfortably ahead on points. My best strategy is to stick and move while ensuring I have little chance of being knocked out late in the fight. I am only going to heavily engage my opponent if he has left himself almost completely open to attack. This means I am going to continue to put new money into the market only on overall dips or when a specific company's stock overreacts to some news event and becomes oversold. I am going to do so as I have for over a year now by employing covered calls or buy-write orders using option strike prices near the money. This approach provides some downside risk mitigation. The upside is capped, but considering that I don't expect much from the overall market in 2020 that is a tradeoff I am more than willing to make. You can also employ this strategy on ETFs, which provide a lot of diversification and more risk mitigation as well. Using this strategy with the SPDR S&P Biotech ETF or Energy Select Sector SPDR can achieve 10% to 13% gains depending on volatility over a six- to eight-month duration even if the underlying ETF does little but thread water over that time. Given that I will be somewhat shocked if the overall market returns double-digits again in 2020, that makes for an easy decision for me. Staying Patient: We are likely to have some of the same worries we navigated in 2019 for investors in the market in the coming year, including trade tensions even as they have ebbed in recent months. We also have the prospect of what will be the nastiest election in my lifetime on the horizon. With stocks at historically elevated valuations and earnings growth likely to be muted after being largely flat in 2019, one would think there will be at least a couple good opportunities in the year ahead to buy the dips. And that is my initial game plan for 2020, keeping in mind Mike Tyson's famous quip, Everyone has a plan until they get hit in the face.

3 Factors That Factor Into My Portfolio Positioning for 2020

They are raising cash, mitigating risk and staying patient.

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