Have been debating moving to cash the past few days. Several reasons: 1. Market is up roughly 45% the past year, I don’t know what will drive markets upwards once stimulus starts to wane. 2. Housing credit will expire soon, more resets, more foreclosures, and more mayhem in the housing market 3. Unemployment will likely creep upwards (if at all), no optimism coming from the consmuers 4. Companies are as lean as they can be, margins will not improve from where they are now once hiring and re-investment in capital picks up. This should hamper earnings growth. 5. Sovereign mess in Europe and Japan, Deficits as a percentage of GDP are getting out of hand. Greece, Portugal, Ireland, Spain, 'nuff said. 6. Interviewed recently with a $15B money manager who had simmillar thoughts on short term prospects for the equity markets I agree timing the market is tough, and you have to know when to get back in, but just curious if anyone else here agrees?
Why cash? Money market returns are horrible! Why not bonds and TIPS?
Don’t try time the market. No one can.
@storko, not exactly true. You can time the market, it’s just improbable for you to be able to do this consistently.
Marc Chandler has a nice expression he uses in the currency world: tops and bottoms are processes, not specific points. If you try to nail the exact top point or bottom point, your chances of missing are enormous. If you think about it as a process of moving in and moving out, you’re much more likely to be reacting to sensible information.
Not all investors are long term, and many are not passive. Timing the market is what makes the liquidity you see everyday.
@Lanikai; Are you focusing on short term returns or are you investing for the long term, e.g. retirement?
This is my retirement account… I’m only 24 but I really don’t see a downside to doing a bit of preservation of capital for a few months by moving to cash until I see some positive signs out there…
I am an alpha hunter! Not a beta grazer…
Dreary Wrote: ------------------------------------------------------- > Not all investors are long term, and many are not > passive. Timing the market is what makes the > liquidity you see everyday. Technically, the daily liquidity of the market can be credited to a few large players (e.g. Citadel, prop desks, etc). Individual investors do not independently - nor collectively - create liquidity. To address your second point, more investors ought to be more long-term oriented and passive. Either way, I am indifferent as to the behavior of others. Now to address the OP. Lanikai Wrote: ------------------------------------------------------- 1. Market is up roughly 45% the past year, I don’t know what will drive markets upwards once stimulus starts to wane. >> Capital markets aren’t governed by the laws of physics. Inertia or any derivative of it such as “the trend is your friend,” isn’t exactly a sound investment thesis. 2. Housing credit will expire soon, more resets, more foreclosures, and more mayhem in the housing market >> Assuming you can predict further government policy and intervention in the housing market. 3. Unemployment will likely creep upwards (if at all), no optimism coming from the consmuers >> Based on? There is a gap in logic. Low consumer confidence – mystery box — Higher Unemployment 4. Companies are as lean as they can be, margins will not improve from where they are now once hiring and re-investment in capital picks up. This should hamper earnings growth. >> Valuation is predicated on Free Cash Flow, or owner earnings, not the quarterly income statement. 5. Sovereign mess in Europe and Japan, Deficits as a percentage of GDP are getting out of hand. Greece, Portugal, Ireland, Spain, 'nuff said. >> Okay 6. Interviewed recently with a $15B money manager who had simmillar thoughts on short term prospects for the equity markets >> I bet you can find someone to tell you that the earth is flat. 75%+ of institutional money managers fail to beat the market. >> Okay now assuming you can correctly time a shift to cash, when are you going to shift back into equities? Do you assume extraordinary ability to time the next big gain?
valuaddict, if you suggest that all investors should go long term, then how do you suggest I can buy and sell my shares each day? If everyone is passive, I’m out of luck! I just have to be passive as well.
I said “more” - not all - a diversity of players in the market is a necessary condition for investors that exploit different investment strategies. All investors couldn’t possibly be passive, since returns to active management would increase (more opportunities > less players > greater inefficiencies) I am stating that a good deal of so called investors have no business investing in individual securities since they lack the expertise, time, or emotional temperament.
ValueAddict Wrote: ------------------------------------------------------- > Dreary Wrote: > -------------------------------------------------- > ----- > > Not all investors are long term, and many are > not > > passive. Timing the market is what makes the > > liquidity you see everyday. > > > Technically, the daily liquidity of the market can > be credited to a few large players (e.g. Citadel, > prop desks, etc). Individual investors do not > independently - nor collectively - create > liquidity. > > To address your second point, more investors ought > to be more long-term oriented and passive. Either > way, I am indifferent as to the behavior of > others. > > Now to address the OP. > > Lanikai Wrote: > -------------------------------------------------- > ----- > > 1. Market is up roughly 45% the past year, I don’t > know what will drive markets upwards once stimulus > starts to wane. > > >> Capital markets aren’t governed by the laws of > physics. Inertia or any derivative of it such as > “the trend is your friend,” isn’t exactly a sound > investment thesis. > > > 2. Housing credit will expire soon, more resets, > more foreclosures, and more mayhem in the housing > market > > >> Assuming you can predict further government > policy and intervention in the housing market. > > 3. Unemployment will likely creep upwards (if at > all), no optimism coming from the consmuers > > >> Based on? There is a gap in logic. Low > consumer confidence – mystery box — Higher > Unemployment > > 4. Companies are as lean as they can be, margins > will not improve from where they are now once > hiring and re-investment in capital picks up. This > should hamper earnings growth. > > >> Valuation is predicated on Free Cash Flow, or > owner earnings, not the quarterly income > statement. > > 5. Sovereign mess in Europe and Japan, Deficits as > a percentage of GDP are getting out of hand. > Greece, Portugal, Ireland, Spain, 'nuff said. > > >> Okay > > 6. Interviewed recently with a $15B money manager > who had simmillar thoughts on short term prospects > for the equity markets > > >> I bet you can find someone to tell you that the > earth is flat. 75%+ of institutional money > managers fail to beat the market. > > >> Okay now assuming you can correctly time a > shift to cash, when are you going to shift back > into equities? Do you assume extraordinary > ability to time the next big gain? I don’t agree with all of your rebuts, but your point is noted. I’m not saying I have a rock solid thesis, just more or less polling the forum to see what others think. You seem to have a grasp then, so tell me, what is your forecast?
My investment philosophy is based on bottom-up fundamental analysis. I honestly don’t care about forecasting as it relates to the aggregate economy. It’s just not something that I do well. Not many people can provide accurate forecasts. I was not criticizing you per se… I just think that if you are making a significant investment decision you should be able to support and articulate it well in order to justify the allocation change. You may turn out to be correct in predicting the overall change in the market level (it’s 50/50 chance). But just because you are right does not mean that your process or reasoning was right. I like to focus on what’s known today and evaluate companies in relation to asset power and normalized earnings power without any reliance on notoriously imprecise forecasts about the unknowable (aka the future). I’ll certainly make projections - but these projections are best case scenarios - and I refuse to pay full price due to the implicit overoptimism that we all exhibit. Other successful investors have articulated these ideas better than me, so there is no point in writing my own book on the subject.
Storko’s recommendation: Canada will rock the world. Invest in Canada.
ValueAddict Wrote: ------------------------------------------------------- > My investment philosophy is based on bottom-up > fundamental analysis. I honestly don’t care about > forecasting as it relates to the aggregate > economy. It’s just not something that I do well. > Not many people can provide accurate forecasts. I > was not criticizing you per se… > > I just think that if you are making a significant > investment decision you should be able to support > and articulate it well in order to justify the > allocation change. You may turn out to be correct > in predicting the overall change in the market > level (it’s 50/50 chance). But just because you > are right does not mean that your process or > reasoning was right. > > I like to focus on what’s known today and evaluate > companies in relation to asset power and > normalized earnings power without any reliance on > notoriously imprecise forecasts about the > unknowable (aka the future). I’ll certainly make > projections - but these projections are best case > scenarios - and I refuse to pay full price due to > the implicit overoptimism that we all exhibit. > > Other successful investors have articulated these > ideas better than me, so there is no point in > writing my own book on the subject. Yea I got that your in the value camp but you really don’t have a view on where you think the markets are going? I mean, even if your not a top down type of investor, wouldn’t you still be aware of the forces and work and be able to offer some form of opinion?
I don’t have a view.
ValueAddict Wrote: ------------------------------------------------------- > I don’t have a view. Well I’m sure you’ll be glad to know that I am a Dodge Cox investor… Seem to do fairly well (DODFX)
Ah great firm
It’s painful to be a value investor, but good luck really.