I wish I had something more substantive to write other than to say that I am observing the marketplace, but that is all I have been doing. There are hints of another upcoming economic storm, but it is difficult to say – the messages that my tea leaves give me are very scatter-brained at present. One of the advantages of having a relatively large cash position (the largest I have ever been since 2008) is that you can take advantage of panic, but I do not see panic yet – thus, no point in diving in. I do see a reversal in the markets, but I am not confident in my conviction.
A common question is – if I am convinced we are headed down, why not just sell everything and be in a perfect position to buy cheaply?
The answer is simple – I might be wrong. It could be the case that this selloff in long-term fixed income products is primarily profit taking, or a transient blip in what has been a profitable uptrend. Also, I do not know when the time to “buy cheaply” is. I might miss the opportunity. There are too many unknowns, plus there is the possibility I am devoting my research time to the wrong group of equities – my research simply didn’t have enough time to screen all the candidates in late 2008/early 2009 and thus I made some, in retrospect, sub-optimal investment decisions.
One of the easiest ways to evoke powerful emotions in the market is by being heavily invested in cash, but watching the rest of the equity market rise without you. An example is stalking an investment candidate close to your buying point, but watching it going up without participating in any upside. There is a sense of lost opportunity, but one always has to console themselves with the fact that there will be future opportunity – just that it will be in a different security and you have to be patient.
Have recent buyers in the past few months been the type of people that sold out in 2009 and didn’t participate in the massive gains subsequent to the economic crisis? Have these people been getting back into the market in droves? Equity and fixed income markets would suggest this is the case.
Patient I will be. The worst mistake that can be made is by forcing your cash to work in sub-optimal investments. The cash earns a small yield, but at least it is a positive and not negative number.