The disconnect between Economic reality and stock market performance continues to make portfolio management challenging. The trend of “easy” money continues at the highest level of global government leaders. The sting of stubborn unemployment, weak housing data and the frustration of seeing the financial “kicking of the can down the road” is intuitively understood by most to be wrong long term. In market environments that reward guessing right, we find ourselves most often watching from the sidelines. Most, if not all, of the 200+ point moves in the stock market are set and traded before the open after some international story breaks. This leads to having to take a position based on what might happen next to change the direction of the current data. Europe has become the proverbial tail wagging the United State financial markets dog.
We feel most comfortable using the large up days to sell into strength, and big down days to pick up bargains when possible. The danger of irrational markets is to lure you in at the wrong time and then cause panic and regret when it changes rapidly. This is why a game plan is critical. Referencing the Economic Cycle Research Institute research and their excellent accuracy with forecasting, we are building portfolios with an eye toward recession. That is not to say we believe it is inevitable, but we do want to prepare for what looks likely. We are stewards of resources, not monopoly players gambling on the potential upside if we are right and prepared to just start over if we happen to run out of money before our “bets” work.
Cash is not an investment performance decision as much as it is a defensive posture with no monetary downside risk. Our goal long term is to hold as little cash as is possible, but not at the expense of losing capital or the ability to take advantage of opportunity that could be the backside of the “it certainly will get better” euphoria. It is always a bit disconcerting when we see the bad news is good news, because it means lower rates and more cash infusion (money printing).
We are reminded of a few of the investment tenants of our firm:
• Follow the strategy and diversify, consistently scrutinizing the results.
• Invest in appropriate proportion to the capital entrusted us
• Manage risk before return
• Don’t let excitement or despair drive changes
• Do everything with integrity and a steward’s mentality
We feel most comfortable using the large up days to sell into strength, and big down days to pick up bargains when possible. The danger of irrational markets is to lure you in at the wrong time and then cause panic and regret when it changes rapidly. This is why a game plan is critical. Referencing the Economic Cycle Research Institute research and their excellent accuracy with forecasting, we are building portfolios with an eye toward recession. That is not to say we believe it is inevitable, but we do want to prepare for what looks likely. We are stewards of resources, not monopoly players gambling on the potential upside if we are right and prepared to just start over if we happen to run out of money before our “bets” work.
Cash is not an investment performance decision as much as it is a defensive posture with no monetary downside risk. Our goal long term is to hold as little cash as is possible, but not at the expense of losing capital or the ability to take advantage of opportunity that could be the backside of the “it certainly will get better” euphoria. It is always a bit disconcerting when we see the bad news is good news, because it means lower rates and more cash infusion (money printing).
We are reminded of a few of the investment tenants of our firm:
• Follow the strategy and diversify, consistently scrutinizing the results.
• Invest in appropriate proportion to the capital entrusted us
• Manage risk before return
• Don’t let excitement or despair drive changes
• Do everything with integrity and a steward’s mentality
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