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What to Buy in a Pullback
The stock market has been on an absolute tear recently. The Dow’s 2,500 point gain in the last five months has caused market sentiment to jump, resulting in impressive flows to equity mutual funds. Earnings news has been resolutely positive, and investors seem to be intent on reallocating assets from fixed income to stocks.
In other words, it’s time to start planning for a potential market pullback.
I believe that a selloff will be more of a buying opportunity than an excuse to sell. The reasoning lies in the market fundamentals. Over the long run, stocks will track the direction of earnings, which have been very impressive. And what separates investing winners from losers is the ability to create a market view and maintain it, even when those around you throw in the towel due to greater than expected volatility.
In other words, diversified investors will be the ones most likely to come out of any market pullback intact.
I will highlight a few investments I’ll be monitoring in the event of a drop in stock prices in my next blog post. Remember, planning is a key element to success in the markets, and building a game plan is a big part of that equation.
About the Author
Ben Warwick, Quantitative Equity Strategies
Veteran investment strategist Ben Warwick brings 20 years of investment management expertise to AdvisorOne.com in his blog, Searching for Alpha. His market and economic insights provide readers with an insider’s view on generating alpha through asset allocation, the use of strategic portfolio “tilts” and alternative investments.
Ben Warwick founded Quantitative Equity Strategies (QES) in 2002 as a platform for implementing his quantitative investment strategies. The firm manages assets with traditional long-only equity and fixed income, private equity, managed futures and alternative investment mandates. QES has developed an industry leading expertise in building investment programs that can replicate alternative returns, while offering daily liquidity and transparency. These products include the HFRq, a hedge fund replication strategy developed in concert with Hedge Fund Research in Chicago; the Managed Futures Beta Index, with Aspen Partners; and the Nomura QES Modeled Private Equity Returns Index (PERI), which was developed with Nomura Bank and Preqin, the leading source of information in the private equity industry.
He is the author of several books, including "Searching for Alpha: The Quest for Exceptional Investment Performance," (Wiley, 2000) and "The Handbook of Managed Futures," with Carl Peters, (McGraw-Hill, 1996). He can be reached at ben@qesinvest.com.
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