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  • Writer's pictureHenri Caron

March 2018 - Outlook

Updated: Aug 2, 2018

Remember the -12% at the beginning of February? I'm glad to point out that we climbed out of that abyss and close the month (slightly) positive.

However, I fear that this correction might be the first of a series. Interest rates are on the rise, meaning that borrowing money becomes more expensive. Less borrowed money in the economy decreases spending, puts pressure on company results and thus stock prices. Higher interest rates simultaneously lead to falling bond prices (and thus higher bond yields) and cause people to displace part of their investments from stocks to bonds, creating a further downward pressure on stock prices.

Although we have climbed out of this last month's abyss, I'm taking a more defensive position to the markets.

First of all, I have closed positions of stocks that have been performing strongly over the past two months, but for which I fear the rising interest rates might have the most negative impact due to the increased cost of borrowing money. Especially clean-tech stocks such as SolarEdge, NextEra Energy and First Solar, but also consumer-spending depending stocks such as Sony. An important motivation for this decision to close positions, is to have cash at hand the moment prices go down. Market swings tend to exaggerate both in a negative and positive direction. Having cash at hand to buy stocks cheaply, should further cover my portfolio in times of strong volatility.

Second, I'm keeping onto current stock positions with a solid track record of dividend returns such as Intel and Texas instruments. Those stocks' solid track record not only make them more resistant to market swings, dropping prices also result in lower price-to-earnings ratios.

Finally, innovation drives economic growth. I believe that companies such as Imperva, Synaptics and IPG Photonics are still at the spear point of the innovation, and thus the economic growth motor. While I do believe they may suffer some short-term devaluations, I foresee those will be too short in nature to divest from them.

In summary, I have prepared my portfolio to be more defensive by closing some positions to have cash at hand to buy cheaply later, and kept some solid positions open. If you are already following me, or if you intend to follow me, I encourage you to do the same: Start copying me, or add more funds to my position when I'm negative. The more I'm low, the more interesting it becomes for you to invest in me.

In any way, I do think the technological growth motor is not over yet and I am convinced that stocks will still perform very well in 2018. Albeit with a bit more volatility compared to 2017.

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