If you look at what most people have been doing since the first wave of COVID, they have been chasing momentum. Be it small cap stocks, private banks, FMCG or chemical stocks, the general mood is to latch onto a trend.
This has become institutionalised. Everybody has been chasing some trend or the other. The last of these trends was the IPO rush by platforms and loss-making companies. Trends also have their life cycles. No trend lasts forever. Investors who profit heavily from trends will still need to reposition before the trend runs out. Most portfolio tragedies happen to investors who travel with the same positions long after the trend has run out. They take the brunt of the valuation hit.
It is critical to evaluate how much trend chasing is happening in your portfolio and to reposition it towards safer options. The positioning should provide your portfolio with an increase in safety, better future readiness, sensible valuation alignment and appropriate growth orientation. The coming weeks should be used to reposition portfolios to ensure excessive valuations are taken benefit of before they run out. By focusing on positioning investors will take the right direction required to reduce risk, improve portfolio balance, and increase allocation to safer stocks.
The coming weeks are a window to achieve the right objectives and to undertake course corrections. The new year may well see the markets shift gears too soon for us to respond effectively.
Investors must make timely actions in December to position their portfolios correctly.