The scorching heat is with some added humidity. Around here it is called earthquake season, and there have been plenty of those recently too. The weather hasn’t been the only thing heating up. Metals have moved to their 52-week high. Gold moved first up to into the low $1,400’s, and silver eventually followed up to the lower $16’s. They are hitting the ceiling so to speak for the last 52 weeks. Our Firm recommends taking profits here. In June we gladly recommended to buy around $14.50 and here around $16.45 is a good exit point. This trade would return around 14%. Pretty hot for two months. Don’t get greedy here. Yes, it could break out, but it could also fall back to its lows.

Netflix took a big hit recently with subscriber growth missing expectations. The market is frying it punishment for the big miss. As a FANG member Facebook, Amazon, Netflix, and Google, it possesses the ability to move sharply and strongly. These stocks have led the market with their returns outperforming every index. Time to start watching it. Its all-time highs were just shy of $400. Priced at $306 this is a 25% discount. We do not recommend buying here. Our buy limit is just north of $250. This would be a 38% discount. As Warren Buffett states, “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” The lower you buy an investment, the less risk to the downside it has and the more upside there is. When you flip these numbers by buying at $250 and selling at $400 it represents a 60% return.

Alpha is watching the Volatility Index, and it appears to be at annual lows around $12. The high of the year boiled over $36. At a third of its price range, we are watching to see how low or how comfortable the market gets. The VIX, known by this symbol, is a popular measure of the stock markets expectation of volatility implied by S&P500 index options. The higher it is, the higher the expected volatility the market is expecting. Lower means there is very little expected volatility.

A good time to look for investment opportunities is usually when this index is high, reflecting that the market has fallen. You can purchase this as an ETF such as symbol TVIX. It is negatively correlated to the stock market. Adding it to your portfolio when the market is at all-time highs is similar to pouring a cool glass of lemonade on a hot July afternoon. It doesn’t turn down the heat, but it will balance you and allow you to endure the heat. If the market falls from here, the VIX will go up offsetting the drop you may have.

As Maynard Ferguson said, “So cool your hot, so hot your cool.” That’s the way every portfolio should be.

Andrew F. Kotyuk, CIMA* is CEO and Principal of Alpha Wealth Management LLC. For questions or investment topics please email me afkotyuk@alpha-wealth.com.

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A tightrope performer balances their weight, so they don’t fall. From Cirque du Soleil to Barnum & Bailey physics is at work with weight rolling or swinging delicately back and forth to maintain a level playing field. Balancing continues as the death-defying momentum continues as the goal is reached on the other side. There are a plan and practice for this goal to be reached over and over again. It is no different from balancing a portfolio.

You do not have to practice countless hours each day to be successful with your investment portfolio, in any case. It starts with a plan where you identify what the right risk levels are for you. From a hundred percent fixed income to a hundred percent equities and everything in between, there is no right or wrong as long as it is what is right for you. Note though that within equities, fixed income or other asset classes, there are different sub-classes. For example, in the fixed income asset class, there is a bank certificate of deposits, government-backed bonds, treasuries, municipal, and corporate bonds, to name a few.

It is common for a portfolio to have a strategy that includes several asset classes and within those classes, diversification into sub-classes. In addition to this, I recommend selecting a few sectors to favor, and a small number of individual investments aimed at outperforming the general asset class it belongs too. Building a portfolio can get quite complicated. Nowadays, there are several tools online if you are a DIY or any reputable Registered Investment Advisor who will be able to assist in building a strategy that is right for you.

So similar to a tightrope performer, you have a goal of what you want your investments to return when your timeframe is reached. As the market shifts one direction, it is similar to the performer on a tightrope leaning one way or another. A portfolio takes the same action with one asset doing better or another under-performing. Overtime this continually changes so that each asset class will outperform and underperform during different periods. As this happens, the portfolio will have too much weight on one side and not enough on the other side. If this is not corrected the original strategy of your portfolio will get out of whack. Just like a tightrope performer, out of balance, your portfolio will fall.

At some point, everyone has heard the saying, “buy low and sell high.” This is the same mentality used when balancing a portfolio. Most call it rebalancing since you adjust it once, then work to maintain it. The side that went up the most you take profits in, sell, and then buy what is low. Math has to be applied to calculate how much to sell and buy to maintain your original weightings. Once you do this a few times, it will become second nature. Some often rebalance but at the least once a year is always recommended. So take this time of year to rebalance your portfolio; it doesn’t matter what the annual circus is.

Andrew F. Kotyuk, CIMA* is CEO and Principal of Alpha Wealth Management LLC, send questions or comments to afkotyuk@alpha-wealth.com.

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