After doing the analysis for my article on how overvalued the S&P 500 is today I realized I needed to make some changes to my portfolio. Specifically, I decided I wanted to reduce the risk of the current portfolio and raise cash so I’m better prepared for the inevitable bear market.
Since my research shows that when the Shiller P/E ratio is as high as it is today (27+) future returns in the market are low, the best use of my money is not in the market. As a result, I’ve sold the following stocks:
| Company | Symbol | Shares | Price | Total |
| Intel | INTC | 264.244 | $50.35 | $13,304.40 |
| Bank of Nova Scotia | BNS | 249.392 | $35.05 | $8,741.85 |
| Kinder Morgan | KMI | 1105.839 | $20.40 | $22,563.38 |
| Walmart | WMT | 296.155 | $73.70 | $21,824.75 |
| Total sales | $66,434.38 |
Rationale for sales
- Intel – their core business is shrinking and I’m not convinced they will be able to successfully transition into mobile processors.
- Bank of Nova Scotia – I’m actively moving away from banks, as they tend to have a tendency to blow themselves up every decade or two. In addition, this was one of my smallest positions, and monitoring it was more trouble than it was worth. I will continue to hold Wells Fargo, as I believe it’s one of the best-managed banks.
- Kinder Morgan – as I mentioned in my post on debt and dividends, I am becoming increasingly wary of companies with large amounts of debt. Given that KMI’s debt to equity ratio is over 5, saying they have a lot of debt is an understatement.
- Walmart – sales have been essentially flat for 4 years. I’m not sure where their growth comes from – they are already everywhere. They don’t seem to have a very good online strategy, and their recent purchase of jet.com seems like a panic move. In addition, I don’t like shopping there. I already have Target and I prefer that investment, so if I can get Target at a reasonable price in the next 3-5 years I’ll happily redeploy this cash to Target.
As you can see, there were a variety of reasons for making the moves I did. In general I’m trying to steer away from companies with lots of debt/leverage, high-tech companies, and slow or no growth companies. I’m also trying to reduce the number of stocks we hold (reducing the amount of time following our holdings).
I have no immediate plans to redeploy this money. I’ll hold it in cash until either the market provides some better values or I decide to use the money to pay down some of our real estate loans.