This week on the Investing with IBD podcast, we take some time to remember the 9/11 tragedy ahead of its 20th anniversary. Kenny Polcari, Managing Partner at Kace Capital Advisors, spent four decades as a floor trader on the New York Stock Exchange. That included some time as a floor trader for O’Neil Securities. Kenny gives his take on the current market but also shares his experience on the morning of 9/11. From his office at the World Trade Center to the New York Stock Exchange his powerful story makes it clear why he will never forget the day.
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Take On The Market: What’s Different This Time
Polcari shares that he’s become a little cautious as the market indexes seem extended. Because central banks globally have had an easy monetary policy since the Financial Crisis of 2008, he points out that a whole generation of investors has no experience with normalization of rates.
You can’t ignore the Fed. The speed at which a taper happens as well as rate hikes will have huge market ramifications. The Fed has been very careful about testing the waters and giving notice to investors but at some point a road to normalization will be necessary.
As for the current market environment, there’s a strong buy on the dip mentality. The S&P 500 has barely hit a 5% correction for nearly a year. But, based on his experience, Polcari is ready for a more serious correction, closer to 10%.
Defensive Posturing For A Portfolio
To make sure he’s not caught flat footed, Polcari has focused on three things to take a more defensive posture.
Hedging: Fear Index Provides Protection
For his overall portfolio, he finds it easier to hold some of his big leaders by using a hedge. The ProShares VIX Short-Term Futures (VIXY) moves with the implied volatility from the options market on the S&P 500 index. The VIX is also known as the “fear index.” During a market correction, the VIX can spike up a great deal. A position in VIXY will go up in that case and help offset hits to your portfolio.
IBM Stock: An Out Of Favor Value Play?
Polcari is also looking at some areas and stocks that have been out of favor. International Business Machines (IBM) is one of these value type plays he’s looking at. It’s a solid company with less volatility and a healthy dividend yield of 4.8%.
Defense With Utilities
Utilities can often be used as a dividend play that tends to do better during corrections. Rather than try to pick a single stock, Polcari opted for the Select Sector SPDR Utility ETF (XLU).
Remembering 9/11 From Ground Zero
When 9/11 happened, Kenny was right there. He was at his office at the 55th floor of the South Tower of the World Trade Center that morning and decided to skip breakfast with his colleagues to catch up on work.
A persistent colleague came back to convince Kenny to join them for breakfast. Minutes later, as Kenny sat down to breakfast at the New York Stock Exchange a few blocks away, the first plane hit the North Tower.
Kenny shares how the rest of his day went and how 9/11 changed trading at the New York Stock Exchange forever. He includes what it was like going back to the NYSE, after it was closed for six days, and waiting with bated breath to see if operations could resume in an orderly fashion. Watch or listen to the last segment to hear Kenny tell it in his own words.
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