TD - It's A Bad Time To Panic Sell Stocks - Again

2023-12-06 23:13:24 ET

Summary

• The world looks risky in 2023, with the NASDAQ-100 at 29 times earnings, and wars in Ukraine and the Middle East. Some think this is all bad news for stocks.
• Recently, I looked at these situations up close to determine whether it's time to sell out of any of my stocks and ETFs.
• In this article, I share the results of the exercise.
• The point of all this is to highlight the issues with "doom and gloom thinking" and show that, in many cases, the economic picture is better than it appears.
• I do not encourage panic selling out of stocks in 2023, I'll reveal the reasons why in the ensuing paragraphs.

There comes a time in a person's investing career when it's time to throw in the towel. You can have the best track record in the world, the best returns, the best ideas, but if you don't know when to call it quits, you'll fall flat on your face.

Sure, I had a pretty good run in 2023. I stayed long stocks despite the endless forecasts saying we were heading into a recession. I bought the dip in Bank of America ( BAC ) during the Spring banking crisis. I held on to my tech stocks for the most part-although I did exit Meta ( META ) and QQQ near their Summer highs. For the year, my investments are up. It's been a satisfactory result.

Still, I know it's time to call it quits. I read all the doomsday prophet X accounts and blogs, and I know that bad things are coming. The Ukraine war is raging. The NASDAQ-100 is trading at 28.75 times earnings . The S&P 500 is on the verge of re-taking its 2021 highs. Basically, all signs point to an overheated market and a precarious global security situation.

So, I'm selling everything. Specifically, I'm selling everything I own where the facts about the company and the global economic situation tell me I should sell. I've already outlined three global situations that increase the risk present in many investments. Surely, these are reason enough to sell at least some of the stocks in my portfolio. However, it makes sense to think these things through thoroughly, with facts and data, before making a move. The news sounds scary, but it would be prudent to check the data to see if it matches the headlines. So, in this article, I will thoroughly review the relevant facts and figures that pertain to my portfolio, and then reveal which stocks, funds, and other assets I actually will sell in 2023.

My Portfolio As It Stands Today

Before exploring the relevant facts and figures that will inform my decision to sell stocks before the New Year, I should review my portfolio as it stands today.

You can see a snapshot of my total portfolio in this X post:

As you can see, my portfolio consists of:

U.S. tech stocks.

• U.S. and Canadian financials.

• Chinese tech stocks.

• Term deposits.

I should review these stocks' key valuation, growth and profitability ratios, to see if there are any major red flags. Here they are, in order of weighting:

As you can see, most of my portfolio stocks are cheaper than the S&P 500, while having adequate growth and profitability. I'll address a few exceptions individually:

• Apple. This company is neither cheap nor growing. However, as I've mentioned in past articles , its strong competitive position argues that the company will be able to turn it around in the future.
• Brookfield. This stock is barely profitable going by GAAP earnings, but its distributable cash flow and free cash flow are both positive. In a past article, I calculated its TTM distributable cash flow per share as being $2.91 , which gives a 12.4 P/E ratio at today's prices. That argues for the stock being cheap.
• Postal Savings Bank and TD Bank both have negative earnings growth in the trailing 12-month period. That's not positive, but in the case of Postal Savings Bank, the cheap valuation more than makes up for the minuscule and temporary decline in earnings, while TD's TTM earnings were held back by a $1.6 billion fine and FHN deal termination fees, both factors that are unlikely to recur in the future. The negative growth rate in TD's earnings shown in the table above is going off of GAAP earnings, the adjusted earnings growth rate is slightly positive for the year.

Apart from the few exceptions covered in the bullets above, the stocks in my portfolio are profitable, growing, and for the most part, pretty cheap. Data for whole indexes is harder to come by, but I was able to find the following P/Es and dividend yields for indexes that my funds track:

As you can see, these are also pretty modestly valued. It's difficult to find profitability ratios and growth rates for indexes, but with broad market index funds, the whole game is not to identify the characteristics of individual companies that make them good but to trust that the diversification and low fees built into such funds will produce an "average" result. The funds above all have 60 or more stocks and - apart from CHIX - all have fees lower than 0.2%. So, I'm happy with my fund holdings. Broadly speaking, the characteristics of the securities I own do not lead me to want to sell any of them.

Macroeconomics

As I showed above, most of my individual stocks are profitable, growing and cheap. My funds are mostly pretty cheap, and they're all very diversified. There's nothing in the preceding paragraphs that would lead me to sell anything. But we still haven't addressed the elephant in the room:

Macro.

There is no topic on earth quite like macroeconomics when it comes to bringing doom and gloom prophets out of the woodwork. Economists spent all of 2022 saying that a recession was right around the corner, and continued the predictions for the better part of 2023. Certainly, I'll find something that will make the case for selling everything in the realm of macro, right?

Well, as far as my U.S. stocks go, I don't see much to be honest. U.S. GDP grew 5.2% last quarter. Inflation was 3.2% . Unemployment is 3.9% . Interest rates are currently pretty high, but if inflation keeps declining, then they likely won't go any higher. This could all change next year, of course. But even the market forecasters are coming around on that topic: the Fed and other economists no longer see a recession in the near term.

In Canada, things are looking a little worse. Inflation in Canada is coming down much like in the U.S., but GDP is declining . The unemployment rate is 5.8% . It's possible that Canada will enter a recession in the next six months, but current trends suggest it will be a mild one. Canada's housing market remains expensive despite the recent correction: that is a risk for TD Bank.

Finally, we have China. China's GDP grew at 4.9% last quarter. Imports and exports both declined, but it didn't affect Chinese tech companies' earnings much: both PDD and BABA had strong results in their most recent quarters. The tension between the U.S. and China on chips and Taiwan is certainly a risk in a conceptual sense, but it's not showing up in Chinese companies' earnings just yet. Based on this brief review of the data, the macro factors affecting my stocks look favorable.

Conclusion

At the beginning of this article, I wrote that I would sell everything. Specifically, every stock and fund I owned where the macro and the security-specific characteristics pertinent to it argued that it was no longer worth holding.

After reviewing the individual stocks and funds I hold, I have determined how many stocks are in total:

Zero.

Despite the prevalence of "doom and gloom" headlines in the media, I find little in the present economy to justify selling out of stocks entirely. As for my individual stocks: a few of them currently show a red flag here or there, but as a whole, these companies are profitable, growing and sensibly valued.

So, I don't feel the need to panic sell out of my stocks at the time being.

Now, you might be wondering, "what exactly was the point of this exercise, in saying that you're selling everything then turning around and figuring out that you don't want to sell anything?"

For me personally, this exercise hasn't changed anything. But the message I present here might be worth listening to for some people. Financial media has a well-known bias toward fear . Emotions sell, and when it comes to stocks, the easiest emotion to sell people on is fear of loss. Stocks are risky, after all, and when you're addressing an audience of people who face risks, fear is the easiest emotion to sell them on. However, that doesn't mean you should actually sell your stocks just because you read a doom and gloom headline. The economic data I highlighted in this article was not a one quarter fluke: GDP was rising and inflation declining for the entire year. Despite this, the "R" word-recession-hung over us like a cloud for the better part of it. There was never any data to seriously suggest that a recession was coming, and I'm not aware of any data foreboding such a development next year. Doomsday prophets will keep peddling stories about a recession that rarely comes, once or twice a decade they'll be right, like the proverbial broken clock. Nevertheless, I'll stay the course. As I said at the start of this article, I'm selling everything that facts and logic say I should sell, and after reviewing the macro environment and financial factors impacting my portfolio, I've concluded that for me at this point in time, "everything" is nothing.

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