Locking in Profits and Looking for Bargains

"Bull markets climb a wall of worry." ~ Wall Street adage 

The stock market continues to melt up despite U.S. deficit/debt issues, European sovereign debt crises, and a weak/fragile global economy.  There seems to be a lot to worry about :-)

I'm still not comfortable putting a large proportion of our retirement or investment accounts into equities.  However, I believe it may be worth adding some more funds in select areas.  Here's my strategy investing in the stock market over the next few months.

Reduce

Dividend stocks.  I've been selling our conservative dividend paying stocks which have had a nice upward run in the past 3-4 months.   The stocks have continued to rise, but I expect there will be an opportunity to buy back at a lower price during a correction.

Energy stocks.  I inherited a high proportion of energy stocks from my parents in the last year.  These stocks also have had a nice upward run over the last 3-4 months.  Also, our accounts are significantly overweight energy, both due to the amount of shares and price increase.  Although I expect energy stocks to be continue to be strong in 2013, I'd like to reduce our exposure in the area to reduce risk.

Company stock.  My company stock has risen over 30% from it mid 2012 52 week low.  I don't expect the stock to continue its outstanding run in 2013. So I'm selling all the stock option with expiration dates through the end of 2014.   I will also look at possible ways to hedge the options that expire after 2014 against a downturn in the market or the stock.

Increase

Financials.  Banks have become stronger with better loan portfolios and higher reserves.  When interest rise, I expect the banks to be extremely profitable. 

Biotechs.  Even with health care reform, I expect that biotechs that develop important drugs will be very profitable.  The challenge is that whether a biotech will succeed or not is never clear in the early stages.  So it is important ot diversify across a number biotechs, which allow the winners to exceed the losers.

Beaten down stocks.  Assuming the bull market continues into late 2014, I expect that beat down stocks in retail, technology and commodities will rebound.  So I am buying small quantities of a number of beaten down stocks.

At this point,  I'm doing my own personal rotation of stocks, to lock in some profits and to buy stocks with future potential.  Our net amount invested will go up.  However, we will still be keeping a significant amount in cash to cover living expenses for the next 3-5 years.

For more on Strategies and Plans, check back every Monday  for a new segment.

This is not financial or investing advice. Please consult a professional advisor.

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