bubbles, bullish, cash allocation, coin clipping, fear and greed, floating world, inflation, negative yields, QE, quantitative easing, stock valuation
I regularly write about fear & greed here. And I often worry about the tentative & fragile recovery we’re hoping for/seeing in the developed economies (led obviously by the US), and whether it’s built on a foundation of sand…or, more correctly, of printed money. I also worry about markets’ headline valuation ratios, which keep marching higher, and question if they’re priced to reflect a growth renaissance, or simply fool’s gold. And sometimes I talk just as much about preserving wealth, as I do about increasing wealth. Most of all, I incessantly interrogate the diversity & robustness of my portfolio, and cling to the comfort its deep value & special situation stocks offer – I demand they help me sleep soundly each night…
Lots of investors deal with this kind of free-floating market anxiety by keeping a healthy slug of cash in their portfolios – but my current cash allocation is actually minimal (& this isn’t a new phenomenon). Which starkly highlights an inherent contradiction of my portfolio:
If I worry so much, how come my entire portfolio’s invested in stocks..?!
Now, I could offer a prior argument – as I usually don’t consider cash a necessary component of a portfolio, with (low risk) event-driven investments generally serving as an acceptable & more attractive substitute. But that would just be a red herring, as I haven’t actually maintained a big allocation to such a cash alternative either. In reality, the answer’s much simpler…as I’ve often said (about management):
Watch what they do, not what they say!
Which is obviously an exhortation that can just as usefully be applied self-critically… OK yeah, I worry, so I obviously rationalise & anaesthetise these anxieties accordingly – but in reality, my fully-invested portfolio is a resounding confirmation of my past, present & continuing bullish stance on the markets. Hopefully, this doesn’t come as a surprise to you – despite the concerns I express regularly, I believe this bullishness has been a predominant & underlying theme of the blog all along.
[This Jul-2014 post is perhaps the best & most recent expression of my underlying bullishness – it just might be worth a read in its entirety].