The Capitalist Investor - Episode 14

The Coronavirus is front and center and has left us all wondering: What do we do with our portfolios? Do we position ourselves to take advantage of the rebound when it happens? April 1st is the beginning of a new quarter and when most people rebalance their portfolio. In this episode of The Capitalist Investor, Derek and I talk about how you should position your portfolio. We also talk about asset classes and industries that will do well—and those we think might tank. Don’t miss it!

Outline of This Episode

  • [0:26] How should we be positioning our portfolios?
  • [1:25] Why you NEED to rebalance your portfolio quarterly
  • [5:04] Develop a plan and stick to it at all costs
  • [6:11] Why the small-cap industry will under-perform
  • [11:22] The industry outlook on department stores
  • [14:32] Should you invest in Boeing and the airlines?
  • [15:48] REITs that you may want to consider
  • [19:11] Could infrastructure Investing be the next big winner?
  • [20:32] Individual stocks are being unfairly punished

Why is it important to rebalance your portfolio?

At this point your portfolios are probably closer to a 50/50 split with the volatility of the market, which is perfectly understandable. You rebalance your portfolio with the goal of getting closer to the 60/40 model. It can be tempting—especially in the middle of a recession—to play it safe and keep your current split. However, you will lose out when the stock market shifts upward.

April 1st, you NEED to start selling bonds and buying stock. As Warren Buffet stated, “Be fearful when others are greedy and greedy when others are fearful”. 80% of the time rebalancing is the right move. Vanguard research shows annual rebalancing yields an extra 0.4% yearly return.

You cannot let fear rule but must have the discipline to stick to your overall strategy. Speaking of an overall strategy—you must develop a process and follow-through with it to avoid making decisions based on emotion. Create your own investment handbook and don’t deviate from it.

The issue with small-cap stock allocation

A typical portfolio may allocate 6% to small-cap stocks. An account handled by a roboadvisor will automatically reallocate your portfolio when it comes time to rebalance. During a recession, you can snag them up close to the bottom. Also, as we emerge from a recession, small-caps tend to snap back the fastest in an aggressive fashion.

I don’t believe that will happen this time.

The small-cap sector as a whole is carrying a higher debt to income ratio. 40% of the companies in the Russell 2000 aren’t making money—they have negative earnings. This is 100% a recipe for disaster. They don’t have strong balance sheets right now and will struggle reemerging from the market.

We are going to sit down and make sure it’s the right decision but will likely lower our percentage in small-caps. We make tactical decisions with our asset classes—something a robot won’t do for you.

Industry outlook: Department stores are fading fast

Department stores have been struggling for a while. Your modern mall is becoming an outdated monolith and they’re slowly but surely closing down. Nordstrom, Macy’s, and Kohls are a dying breed. The only thing keeping Kohl’s afloat is that they started accepting Amazon returns. Consumer preferences are shifting and everyone is buying online.

This is the time where you take a deep breath and take a loss on your Macy’s stock. There are better stocks that you can buy into at drop-bottom prices that will rebound faster and pay off in the long-term. Upgrade your portfolio and a temporary loss may become a long-term win.

Listen to the whole episode to hear why we strongly caution you against buying into Boeing and the airline industry.

Where the winners could be

Commercial retail space could be facing a struggle as the economy in all likelihood will begin to shift closer to a remote workforce. With more people working from home, the world will be looking to store more information. This is where Data Center REITs may be on the rise.

Infrastructure investing could also be on the winning end of the equation. Our current infrastructure is lagging as more and more people are working from home. It wasn’t built to sustain the current level of traffic—so you can bet they’re going to be ramping up their build-out.

We talk about some stock you may want to avoid even though they’re currently performing well—you may be surprised. Listen to the whole episode for our detailed dissection of the market and why it’s imperative you rebalance your portfolio.

Resources & People Mentioned

Connect with Derek Gabrielsen

Connect With Mark Tepper

Send your questions and comments to us at

Subscribe to The Capitalist Investor


Show Notes by

Keep Listening to The Capitalist Investor:
Episode 15:
Spending Strategies in a Bear Market, Ep #15
Episode 31:
Handicapping the 2020 Election, Ep #31
Episode 47:
11 Investments in Your Home That Pay Off, Ep #47
Episode 63:
Jeff Bezos and Amazon: Past, Present, and Future Ep #63
Episode 79:
7 Ways Biden Plans to Tax American Families (Part II), Ep #79
Episode 95:
5 Beaten Down Stocks to Buy on the Dip, Ep #95
Episode 111:
Special Episode – Talking Energy with Daniel Turner, Ep. #111
Episode 127:
Retail Earnings Tank & What The Heck is Greenflation? Ep. #127