A look at 2015
While 1 year in the stock market is a long time, 2015 did not carry the same upward momentum as the previous years… talking about the S&P500 Index specifically (a broad market indicator). While individual stocks may have performed incredibly, the 1st half of the year for the S&P500 was rather flat until August when we drilled down 10% setting the stage for increased volatility. No matter how you paint it, 2015 was not a great year for long term investors.
August was brutal for me… seeing my portfolio sink so fast was not a good feeling. The volatility caught me off guard but I learned from that experience and will use it as a strength going forward.
S&P500 Index throughout 2015
S&P500 Index throughout past 6 years
In 2010 and 2011 the market was establishing an upward trend after coming out of a huge crash which ended in early 2009. There were some pullbacks along the way, but from 2012 to the end of 2014 the market aggressively pushed higher.
For the most part, the 1st half of 2015 was a relatively tight trading range until we sold off hard in August. Are you asking yourself what will happen next with all the buying pressure seemingly fading away?
I’ll tell you what I think… but first lets have a look at…
Dividend Project’s 2015 Highlights
Portfolio starting value: $ 35,654.34
Portfolio ending value: $ 45,126.52 (+ 18.9% after excluding cash injections to portfolio)
Dividends earned: $ 3,249.04
So 2015 was a fantastic year for my portfolio and becomes my benchmark for 2016. Down market or not, I need to generate a return. If the S&P500 ends the year down, it will not be acceptable for me that my portfolio should end down. At a minimum I must continue to outperform the market.
The Market in 2016
Everyone has an opinion, ask 1 million people and you’ll get 1 million different answers with each person thinking they’re smarter than the next. I don’t have a crystal ball and I’m not smarter than any other investor, but if you’re wondering what I think:
- Since 2015 the market has been building negative momentum
- Since 2015 the market set the stage for higher volatility
For those 2 reasons I believe we will have a difficult 2016 with a possibility of breaking even lower than August 2015. Sounds great doesn’t it? How low we go all depends on how aggressive the selling pressure is. The real question is how to protect your portfolio so you can sleep well at night.
I am planning to buy OOM (out-of-the-money) put options to protect against any shocks in the event that we drop to even 1500 on the S&P500. You might think that’s crazy and maybe it is, but I don’t want to watch my portfolio bleed while the market drills down without anything to protect it. If we get that low, it will not be a slow and steady gradual decline… it will be blood in the streets. This means that you would be wise to hold some put options since regardless of the delta, you should gain on the spike in volatility no matter what.
What about staying out of the markets? That could be a safe strategy if we have a terrible 2016, but it can cost opportunity since at the end of the day no one ever really knows what the markets will do.
I will continue to swing trade SPY and buy options on stocks only if there is a huge margin of safety since I think we’ll be in a tough market environment.
If you have questions…
About investing in general or want to learn about options feel free to reach out to me on social media or via email in the header links of my blog.
I would be glad to talk to you!