Do you ever look back at a time in your young adulthood and say “I’m glad I survived that”? Like most young men, I probably had a few those moments as I approached manhood in the mid 80’s and early 90’s. One such situation,if you’ll humor me, was a drive with acquaintance/friend of mine in high school. His name was Kelly and he was the step son of a very successful businessman in Evansville, where I grew up. Kelly was fun to hang out with, as he was funny, well financed, and care-free! Also, Kelly liked to drive fast… crazy fast! And, thanks to his very wealth stepfather, he was well equipped with a turbo charged car when he turned 16. One evening, my friends and I ended up at his house and he took us for a drive in his land-rocket loaded with five kids. He proceeded to drive us 85 miles per hour through the wooded country road he lived on, getting air-born on each hill. It was terrifying and, to be honest, exhilarating all at the same time. Mind you, none of us had a seatbelt on. Kelly enjoyed scaring us as he smiled and laughed the entire drive. I will never forget it is only by the grace of God that we all survived.
I share this story with you as we jump to new highs on the S&P and Nasdaq. It can be thrilling, exhilarating and scary all at the same time. And, it is possible that the market will not crash and your portfolio will survive. However, in retrospect, knowing what I know now, I would havenever gotten in that car.
With all that said, I realize that comparing the potential of dying in a car wreck and trading technology stocks may be hyperbolic, however history shows that they both have the potential to crash. That leads me to the chart below, courtesy of VanEck.
Source: VanEck. Past performance does not guarantee future returns. The information contained herein is derived from sources we believe reliable but its accuracy is not guaranteed.
In summary, it shows the ratio Large Cap Growth (mostly technology) and Value stocks. The last time we were at these levels was around 1998/1999, right before the Dot-com bubble.
The message here is a simple one. Getting to the destination alive and in one piece is the goal. We don’t need to break the speed limit or get air born on every hill while wearing no seatbelt. We can arrive safely at lower speeds and with less excitement. The drive can still be beautiful and successful while being safe. Keeping your portfolio “alive” through proper diversification and risk management versus breakneck speeds will serve investors much better than reckless driving through the “wooded” areas we now find ourselves in; a trade war, a potential 24’/25’ recession, geopolitical unrest, and a swelling national debt crisis. Moreover, most of us can’t fall back on the wealth of our stepdad.