Investors should, 'rebalance a little bit' of their portfolios in order to withstand a 5-10% correction: Portfolio Wealth Advisors CIO

Portfolio Wealth Advisors President and CIO Lee Munson joined Yahoo Finance Live to break down how investors should alter their portfolios to prepare for a market correction.

Video transcript

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SEANA SMITH: Got 18 minutes to go until the closing bell. And you're looking at a mixed picture here. The Dow is still under pressure, off just around 52 points. S&P and NASDAQ, though, holding onto gains. NASDAQ, the big winner today, up just around 1%.

We want to bring in Lee Munson, Portfolio Wealth Advisors, president and chief investment officer. Lee, great to see you again. Let's start with some of today's moves. I know we have a lot to talk about.

But the reopening [? plays. ?] That, of course, is getting a lot of attention today on the heels of the news that we got out from J&J. How are you thinking about this just in terms of the opportunity with some of these names when we get headlines like we did today?

LEE MUNSON: Oh, I love it. It gives you the opportunity to buy the winners since September 1 since we started this reopening for a cheaper price. OK, let's look like, year to date. Small cap value has definitely bludgeoned and outperformed the NASDAQ since the beginning of the year. But if you look back the last 30 days, it's reversed.

You know, it seems as if the NASDAQ is the relative value. And small value can do nothing right. I think this is an opportunity for most investors to say, hey, do I actually believe that we're going to lose money for the next few years? And do I actually believe that we are going to reopen regardless that I live in the state of New Mexico? And they're saying today, we're not even-- we're going to suspend the Johnson & Johnson thing like AstraZeneca back in Europe.

I don't think this is really-- this is a short-term bump in the road. And you stack that on top of-- "60 Minutes" interview of Jay Powell saying the word growth. Oh, my god. Wall Street's freaking out. And then we've got this harbinger of possible bad news if Coinbase doesn't dazzle everybody tomorrow.

So I think you have an opportunity to buy the winners, which, of course, has been small value-- value stuff over tech. And then, of course, in my mind, you want to buy those losers. Losers? Oh, it's clear as day. It's called gold, silver, gold miners as if all this money printing is going to end well.

And that's what I'm doing right now. And I think you have to rebalance. And you have to make sure that if you own too much of something right now, you got to get it back so that you can withstand a 5% to 10% correction. That doesn't mean go to cash. It just says just rebalance a little bit, move forward. Nobody says we're going to correct like I think.

JARED BLIKRE: Well, Lee, I haven't heard the term gold in quite a while-- gold, the other Bitcoin. But I want to talk about the B of A global fund manager story which came out this morning. And COVID is way down the list of worries for Wall Street.

$600 billion in assets, I think, that these guys control. They're worried about the bond market, possible taper tantrum, inflation, things of that nature. What keeps you at night? What keeps you up at night? And financial answers only, please.

SEANA SMITH: [LAUGHS]

LEE MUNSON: Oh, come on. You're not making this fun. What keeps me up at night is knowing that the more people worry about inflation and the more people who think that Bitcoin has replaced gold gives me an opportunity to accumulate more gold, more gold miners, more silver miners, and more silver, maybe up to 10% of my client's portfolio at relatively cheap prices, right, because they think that that-- that is a story that's done.

If you look back post-2000, if you look back 2009, to 2011, generally, those precious metals are a little bit lagging. Remember, what makes gold expensive is how much it costs to mine. And everybody has these real strong opinions about, Oh, it's only about the size of Fed balance sheets-- only this and only that. And at the end, they say, but I'm not really a gold expert, right?

Well, I'm going to tell you something. This is a cheap asset class that's a great hedge against inflation, right? And it's a great hedge when the Fed has to expand the balance sheet, which they said they're going to do for another couple of years. And so when you look at this drawdown, you're getting a distribution where everybody who is interested in gold because of crisis. They're out.

And now we're just left with people who want to have an allocation. And as inflation starts to pick up between now and the end of the year and we realize that Jay Powell is going to let things overheat like he always has said he will, I think there'll be demand for that. And there's room for gold. There's room for silver. There's room for Bitcoin. But I am changing my ratios. I know that I always say I try to buy about $4 of gold for every dollar, silver.

Today, we're making some changes. I'm probably going to be about half and half because I want that silver because of its industrial use. And I think I'm seeing publicly here kind of the first time that I'm looking at my gold-silver ratio being kind of 50-50.

But you want to buy these things when everybody and every technician and every chartist says, I don't really see the catalyst. I don't really see how this is going to happen. That's when you buy insurance, not when your house is on fire.

SEANA SMITH: Lee, what about the banks? We're set to get earnings from many of them over the next couple of days. We have JP Morgan. That stock up just around 20% since the start of the year. Bank of America, up 29%. Bunch of them have had a pretty good run since January 1. Are you still seeing-- or are you seeing any opportunity in some of these bigger bank names?

LEE MUNSON: Oh, I'm long, not wrong. We bought a lot of banks last year when nobody wanted to buy them. And there's a question that comes up is, should I be selling all my banks? Well, first of all, I haven't even owned them for years. I don't want to pay through the nose on long-term capital gains. And the banks are more of a forever position.

Last year, everybody was talking about how you can buy banks depressed here and hold them for years. And today, everybody wants to act like it was a trade. It's not a trade. I think if you want to own some individual securities, most of my clients, we don't do that. I have a few that want to speculate-- like to own those.

For full disclosure, I own most of the major banks in my own personal account. And I've owned them for a while. And I think that if you see weakness, because what are they going to say? They're going to say everything is great. They're going to say that all the money that we held back in loss reserves-- we're going to put back into shareholder value. We're going to start doing buybacks and pay dividends. That's going to happen.

So if you see them get weak, I would either use that opportunity to go buy those individual names or more broadly, look at large and small value because those indexes have so much in financials. The financials get hit on the good news we expect. I think that that's your cue to go in there and do a little buying, sell some of your 10-year treasury, sell some corporate bonds, and go get busy. So I kind of hope the prices come down short-term from a tactical perspective so I can get more of them.

JARED BLIKRE: Lee, going through your note, one word stood out to me. And that's emerging. And that's another word that stood out to me. In the B of A report this morning, we were just talking about emerging markets. Staples, utilities are part of their contrarian place.

I want to focus on emerging markets because they're heavily tied towards Asia, especially some of these tech giants. We saw Alibaba get dished out at record fine for antitrust, almost $3 billion. Stock went up about 10%. Is that an all clear sign on this trade?

LEE MUNSON: Oh, hell, yeah. I mean, oh, my god. I remember when Jesus, my trader came in. And he said, Oh, the Alibaba, they got it all done for like, $3 bill or something like that. I was like, that's like a slap on the wrist.

Like, they're basically saying, just relax. We just want to flex our muscle here in China. And you're right. Emerging markets-- I don't call them emerging markets. I always tell clients it's China-centric Asia, right?

I mean, how much in Russia and Greece is in that emerging market index? Not very much. But what you're getting is you're getting a basket of about 2021 countries that have great demographics with young people. Yeah, there's a lot of political risk.

But these are countries that are very undervalued more than in history, pay good dividends. And you get to buy things, like Baba, and JD. And you get to buy all these Chinese tech stocks at a fraction of the valuation that you can in America.

And again, you should pay less for emerging markets. They are more risky. But when you see a $3 billion slap on the wrist and go ahead, no wonder the stock is up. I'm surprised the stock isn't up 20%.

But when I get out there, I just like to buy the index, guys. I don't want to dabble in these individual names because you're right. Anything weird could happen. And those things could just be dead on arrival the next day.

So get a broad index. I like the Vanguard VWO. EEM is a classic, [? going ?] to cost a little more. It's a little bit more liquid. I don't really care what you all do out there. But you want to buy something with a lot of different companies and so that any one thing won't really bring you down. That's my kind of advice for everybody out there.

SEANA SMITH: All right, Lee Munson. We're going to leave it there. Portfolio Wealth Advisors president and chief investment officer. We will talk to you again [? soon-- ?]