Silversage Blog

Fall Portfolio Pruning

Seasonal weakness in September/October doesn’t always happen, but we’re experiencing it now. Consider the following analogy: Normal and necessary to maintain a healthy yard. Think of it in three phases:

  1. Trimming a few branches here and there, pinching dead flowers, no big deal, right? That’s akin to stocks pulling back by around 5%.
  2. The newly trimmed hedge, now 6 inches shorter, is bare on top, and will need a few weeks to grow back leaves at the top to make it look nice again. That’s more like a 10-15% correction. Doesn’t look good at first, and needs some time to grow back.
  3. And then there are the roses. Ugly stumps by end of November…only to re-bloom by February (gotta love Southern California!). Or the large trees that need annual branch trimming. Like a bear market, down 20% or more, and will certainly need more time, maybe several months to recover. Each with varying degrees of yard care, all normal and prudent.

Same with your portfolios and the markets.  How low will this correction go? Dunno. At their recent lows, the major indices were 11–15% below their fall peaks. Definitely worse than weekly yard maintenance, yet clearly in correction levels (-10% in most indices). We are still not anticipating a bear market, or winter rose bush pruning, if you will, in the S&P 500 or Nasdaq indexes, and are monitoring carefully.

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