Divestor

The quarter-to-date number is astonishingly high, but quite bluntly these are the times like 2009 where you have to reach for the sky.

This week was frustrating because of the velocity of how the market rocketed up.

I’ve had this informal heuristic where my selling reallocation gets conducted when the overall markets are in a buying mood, and does my buying reallocation when the markets are in a selling mood.

This works great until you stop getting down days, where instead you build up excess cash in the portfolio. There is a form of portfolio misallocation going on right now, and it is in the form of zero-yielding cash.

Going from negative 12% cash to positive 12% cash (basically taking advantage of companies that were pounded to death in early April and cashing them out for some quick gains for more durable picks) and then having everything else rocket up still means you’re participating in the market, but other than getting a 500 share fill on a company some of you may have heard of, it’s been pretty tough going – my limit orders haven’t been getting hit.

The markets, for the most part, “feel” like the people that have cashed out their portfolios in March/April are trying to get back in.

I do have notional exposure to the ever-increasingly concentrated S&P 500 but it is mild (the percentage exposure has gone down, and this was fortunately aided by the fact that the rest of the portfolio itself has gone up).

The only future losing investment I can see at this time is long-duration fixed income. Even rate-reset preferred shares, which should be relative underperformers, will be okay for the most cautious investors compared to sticking money in A-AA-AAA fixed income.

The trick here is to not view the cash in your portfolio as (too much of) a liability (yes, my CPA hat is screaming at me that cash is in the asset column, I think the reader knows what I am getting at here). Instead of saying “damn it, I’m just going to hit the ask”, waiting for a day when Trump says something that causes the market to go down a couple percent, or some other equivalent, and then choosing to purchase when the nervous nellies return thinking there will be a second rebound of COVID-19. The latter isn’t happening – the surprise is going to be how quickly COVID-19 will disappear, except in the eyes of the media, and the public knows it.

The question is when the month-long euphoria of re-opening (which will cause a spending boom) ends, what will happen to employment, capital investment, and so forth. There are a lot of questions about the potential re-domestication (I don’t know what else to call this) of certain components of the US economy. Regulatory structures do need to change to give companies incentives to on-shoring manufacturing that has long since been outsourced (mostly to China). In Canada, the only industries that matter in the lens of the current government are the ones encompassing the metropolitan Toronto and Montreal areas, with Atlantic Canada (you can literally look at the 2019 election results map and look for the ‘red’ areas to determine where the government privilege will go), so apply that information strategically in Canadian investment decisions. As in, Bombardier unsecured debt is trading at around 60 cents on the dollar.