Stock rout creating discounts that are 'hard to ignore,' portfolio strategist says

Bone Fide Wealth President Douglas Boneparth joins Yahoo Finance Live to discuss discounts in the stock market and some strategies for building investor portfolios amid market volatility.

Video Transcript

AKIKO FUJITA: We've got Douglas Boneparth. He is Bona Fide Wealth president. Doug, it's great to talk to you. I think a lot of people are trying to make sense of the markets right now after what we saw especially yesterday, a bounce back earlier on Monday. And then here we are trying to make sense of this retail sector overall. But are you buying into this market right now?

DOUGLAS BONEPARTH: It's kind of hard not to. It's kind of hard to ignore discounts that are showing up here, certainly in your growthier tech-related stocks. For clients as well as myself, nibbling in through dollar cost averaging.

So if things really start to deteriorate, we can always shorten those time frames, get more money in quicker. But we try and do things in a very measured and disciplined way. But there are discounts out there, certainly in the equity markets and even the fixed income markets.

BRIAN CHEUNG: Doug, I mean, it's great to have you on the program during this time, just because it sounds like there is a strategy to get in at this point. But at the same time, if you time the market in the beginning of the trading session or the end of the trading session, that's the difference between what could be 20% or 30%. So how volatile is it out there right now from your perspective? And how do you try to time it if you are trying to get in?

DOUGLAS BONEPARTH: Yeah, sure. You don't try and time it. You try and put some rules in place, such as sticking to a strategy. If you had a lump sum of money, maybe you're looking at over 12 months, 6 months, 18. There are some subjective factors that go into figuring out exactly what kind of time frame you should be dealing with here. So the more you can stay away from making that very tactical decision of pushing chips all in, the better off you might be as a retail investor.

And that's not to say there isn't a point in time where things have become so attractive that you might want to put that lump sum of cash that hopefully you have on the sideline or a rotation out of your less risky assets into riskier assets to work. And the best thing you could do in that case is to figure out what that signpost in the ground is. Is it at a 30% drawdown on the S&P 500? That might be where things become so appealing you might not care if another 5% or 10% of pain is coming after that. Or you shorten that dollar cost average window from 12 to 3 months. So maybe you catch the dip dipping further or hedging your bets that things might rebound.

AKIKO FUJITA: Doug, what we've seen throughout the earnings season is really one bad report being lumped into the entire sector. We saw it with Target and Walmart. Yesterday we were talking about Snap, of course, with some of the social media stocks.

What are you telling your clients about how to differentiate some of these names? Because it sounds like you're wanting to go in on the dip. And yet, as we've said over and, over all these stocks are, obviously, even at the same sector, not the same.

DOUGLAS BONEPARTH: Yeah, it's much more difficult to play this game when you're thinking about individual issues and individual companies. It could be scarier to go ahead and pick and place your bets on individual companies. I think there are a lot of quality companies out there that are looking attractive with discounts associated with them. But in practice, we're generally looking at risk-adjusted portfolios, your classic 80-20, 60-40, even up to 100% equities as the opportunities on rebalancing or allocating to.

We try and take a lot of the guesswork out of investing and believe that what's right for most retail investors is to stick to low-cost index funds that, again, if you can stick to these strategies, good investors are made by consistently investing in uptrends. Great investors are made by being able to do that same discipline in downtrends. That's where you're able to win the game and compound, by sticking to things. So the easier it is to stick to something, generally the more we agree with the strategy. Picking individual stocks, much more difficult to do that.

BRIAN CHEUNG: All right, well then if it's not in the stocks, then, are there places to go in not stocks in terms of portfolio allocation here?

DOUGLAS BONEPARTH: Yeah, I mean, again, it's by most beaten up. You're looking at the NASDAQ 100 on a 30% plus drawdown. And you believe technology is still going to be a part of this world for the foreseeable future. There's discounts to be had there.

And you can dive deeper in there and look at some of your larger companies with stronger balance sheets. I like taking a look at free cash or just cash on the balance sheet. Scarier times for more VC-backed or newcomers to the market. That might only have so much liquidity and runway. That's scary in environments like these.

But your stalwarts with huge cash allocations and free cash that have come down 15%, 20%, and even 25%, these household names look attractive to me right now. There's still maybe more pain to come. Again, starting to nibble and average into them is a way to hedge your bet.

BRIAN CHEUNG: All right, a little scary out there, but we'll see if we can navigate those waters. Douglas Boneparth with Bona Fide Wealth, president, thanks for stopping by Yahoo Finance. We appreciate it.