In the whirlwind of market surges, the Fear & Greed Index hitting Extreme Greed can be both exhilarating and nerve-wracking. Historically, such rapid climbs have triggered cautionary signals. Remember July 27th of this year? That’s when the S&P 500 peaked, and Extreme Greed was at a high, followed by a 6% drop in just three weeks. But here we are again, witnessing a similar climb, under different circumstances—this time propelled by a perceived Fed pivot in lowering interest rates next year.
The risk of an overbought market looms large when the ascent is rapid. Such scenarios historically led to sell-offs or corrections to readjust the overbought conditions. Financial experts like Jim Cramer suggest trimming some large profits in such situations, locking in gains to shield against potential market volatility.
Our dilemma? Balancing between long-term investments and our active portfolio. Our S&P 500 Index Fund, which we envision building for two decades or more, remains growing with the market in its 15% surge, our “Acorns” account which holds ETFs, is a great long-term fund and for beginners to learn (read more about it here). Then there's the Roth IRA for our retirement years, with a hands-off approach until retirement. But what about our active portfolio—home to our prized largest assets like Honeywell (HON), Morgan Stanley (MS), and Ford (F), our “BIG 3”? While we're keen on securing profits, the question of whether it's the opportune moment hangs in the balance.
Honeywell, a heavyweight in our portfolio, has been a beacon of consistent growth. Its recent moves, including the acquisition of the Carrier Unit for $5 billion, have bolstered our confidence. Morgan Stanley, purchased back in 2022 amidst patient-testing conditions, surged by 6.34% in a single day after the Fed's interest rate news. And Ford, our underdog pick, soared 8.04%, validating our enduring belief in its potential.
Honeywell's big rise is tempting, no doubt. Considering the potential to diversify, we've contemplated trimming this position. However, a deeper analysis reveals a different story. While the stock has soared, its 1-year price target, estimated at 216, suggests potential further growth. Currently, at 205, it hasn't crossed our case-by-case rule for small profit-taking, set at around 15%. This cautious approach aligns with our strategy of letting our winners run, especially when they show promise for continued upward movement.
While we can employ a trim-at-15% rule, our strategy often evolves on a case-by-case basis. Take our Nvidia stock, for instance, soaring proudly at a remarkable 41% gain. This stock aligns with our 'Own Don't Trade' approach, primarily due to our conviction in its potential. With its price target projected to reach around 600 next year, especially considering its current value at 485, Nvidia exemplifies the type of stock we prefer to hold for the long term.
Our goal isn't just about making profits; it's about making the right moves at the right time. It's about striking the balance between securing gains and leaving room for further growth potential. The challenge lies in deciphering whether the current gains warrant taking some chips off the table or if these stocks have more fuel left in their upward trajectory.
Embracing the insights from Charles Payne’s book, "Unstoppable Prosperity," has been eye-opening. The emphasis on long-term wealth-building over the allure of quick gains perfectly resonates with our investment philosophy. Payne’s words hit home: "By opting for quick and satisfying small profits, I was dramatically hurting my chances to build serious wealth, which, of course, was my main goal!" It's a poignant reminder that succumbing to natural fears of missing out on immediate gains might hinder our broader objective of sustainable wealth creation.
Furthermore, as Payne notes, our decision to close an investment position isn’t solely driven by market whims but grounded in robust fundamentals. This reinforcement underlines the significance of evaluating the core strengths of our stocks beyond the current surge, fostering a more informed decision-making process.
In this high-stakes game of financial chess, the stakes are elevated. As we tread cautiously, considering trimming some profits from our active portfolio, we remain cognizant that it's not just about the gains today but the strategies we employ for sustainable growth tomorrow. The surge might be thrilling, but strategic moves pave the path for long-term success.
The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.
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