Stocks are near record highs, but prudence dictates taking profits in 2024

I recently sat down with one of my heroes, Matt Ridley. His book, “The Rational Optimist: How Prosperity Evolves,” changed my life. It helped me see what was right with the world instead of getting bogged down in the constant doom and gloom.

Matt and I are optimistic because of the entrepreneurs who continue to innovate and improve our lives. Everything great was built by someone. And thanks to the stock market, we can piggyback on their successes by investing in their companies.

While 2024 is setting up to be another great year, I’ve learned to expect the unexpected. Everyone and their mother thought stocks were going to fall in 2023. We took the other side of that bet and made a lot of money. The S&P 500 jumped 24%, and our Disruption Investor portfolio finished the year up 50%—more than double the return of the S&P.

Now, it’s time for some prudence.

With the S&P 500 near an all-time high, I see a lot of people getting very bullish. Speaking from experience, that makes me nervous. Our research suggests 2024 could be rockier than last year. The biggest “known” risk is the U.S. presidential election.

This will be the most extraordinary U.S. election ever, and not in a good way. Prepare to be depressed by the rhetoric, especially heading into November. This will likely weigh on the national psyche. Investors will go “risk-off.” I wouldn’t be surprised if stocks sell off heading into November’s political “Super Bowl.”

Stocks in an election year

For perspective, stocks typically go up in election years. Since 1928, U.S. stocks were positive 90% of the time—gaining 11%, on average. Our research suggests this time could be different. This is a great time to get rid of any stocks you’re unsure of. Read more: Look under the surface and you’ll find reasons to be cautious on stocks.

Imagine something crazy happens, like one of the presidential candidates dies or inflation jumps back to 10% … and stocks plunge. Own businesses you wouldn’t be afraid to buy in these highly unlikely scenarios: Stocks you’re happy holding regardless of what happens.

But while the going is good, it may be time to sell that stock you only “kinda, sorta” like.

We’re preparing for potential volatility by continuing to own only great businesses profiting from disruptive megatrends. These are great disruptors that will sail through stormy seas. They don’t care about volatility. They get after it and stay after it. My advice: Focus on great businesses; take profits on everything else.