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businessinsider - 6 days ago

Legendary investor Laszlo Birinyi nailed the 11-year bull market at every turn. He shares his 7-part strategy for thriving during a prolonged crisis — and says a quick recovery from coronavirus is wishful thinking.

Laszlo Birinyi is taking a cautious approach to the stock market, even as it attempts to recover from the coronavirus-driven slump. In a recent client letter, he explained why he does not expect a so-called V-shaped recovery and shared seven nuggets of advice for managing portfolios at this time. Click here for more BI Prime stories. Laszlo Birinyi is one of the most steadfast bulls on Wall Street. But these days, cautious optimism is how he describes his investing approach. The president of Birinyi Associates was relieved to see the stock market s bounces this week, after the coronavirus pandemic triggered the S P 500 s fastest 30% decline in history. And yet, he saw the so-called relief rallies as opportunities to sell advice that his clients may not have received just a few months ago. Birinyi is skeptical of the stock market s attempts to rebound because the economy s recovery is still very much in doubt, and there is still no concrete response to the epidemic. And he s someone whose views are worth heeding, having nailed his predictions throughout the 11-year equity bull market, including calling the bottom in March 2009. There s no shortage of evidence to back up Birinyi s concern: first-time unemployment claims are at historic highs, entire industries are pleading for federal bailouts, and Congress is in the process of authorizing direct deposits that will replace lost income for millions of Americans. All this is in addition to the fact that the daily rate of new coronavirus infections represented by the widely touted curve is still not slowing in the US. Beyond the economic fundamentals, Birinyi is taken aback by the market s whipsawing in recent days. The swings are indicative of how much uncertainty they investors face. Take Friday March 20 for example, when the Nasdaq was at its 5% limit up in premarket trading but ultimately closed down nearly 4%. Based on all of the above, investors should not even entertain the idea of a V-shaped recovery and the thought that the market will bottom before the economy or before the virus is, we think, wishful thinking, Birinyi said in his monthly newsletter to clients. He further outlined seven ways his firm is managing its portfolios in light of their expectation for more volatility. Do not make any dramatic moves unless forced: A keep calm and carry on approach to your portfolio is advised even if, like Birinyi, you ve managed to lose less than the market during this period. Stay away from market analysis and commentary if possible: This crisis has no parallels to history, as far as Birinyi is concerned. Sell certain winners: Look for the weak link in your portfolio. This could be a stock that previously performed in line with the market but is now on the verge of becoming a loser. Sell stocks which are less than 1% of your portfolio: They re unlikely to move your performance needle on the way up or down. So rather focus on names that matter. Avoid virus plays : His cursory look at some lists of stock recommendations show that the gains are usually concentrated in a few names. Do not buy exotic exchange-traded funds: For example, an ETF that buys stocks with high dividend yields will purchase more during a sell-off. That s because dividend yields increase as stock prices go down. And soon enough, the ETF will lose value as well. If you must, buy individual stocks: AMD, Adobe, and Broadcom are a few tech picks that Birinyi singles out as bargains. SEE ALSO: Morgan Stanley studied decades of recession history to compile a playbook for what to buy during and after a stock bear market — and when to do it Join the conversation about this story NOW WATCH: A big-money investor in juggernauts like Facebook and Netflix breaks down the 3rd wave firms that are leading the next round of tech disruption


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