It didn't take long. An hour or two with the mouse and keyboard, tap tap tap, click click click, and I'm in cash. Up 17.5% for the year, time to take my ball and go home. The precipitating incident was trivial: I made what I considered a reasonable request, and my brokerage refused to grant it.
I told them it would cost them a customer, they very politely informed me they didn't care. So I closed my positions and moved the cash to an FDIC insured bank account. In point of fact, the service incident was the straw that broke the camel's back: I'm just plain sick and tired of the stock market. It's time to sit on the sidelines, step back and think - with my money in my pocket.
In October 2011, I wrote an article entitled "Fixing Wall Street: Cutting the Gordian Knot." In it, I voiced my views on Financialism as it afflicts the economy, the market, and monetary policy. By way of disclosure and conclusion, I explained why I was long the market:
I'm long US equities based on valuation. I would be far more optimistic if I felt there was a realistic possibility of change along the lines discussed in this article.
The only thing that's different now is, the S&P 500 is hanging in the 1,520 area, as compared to 1,200 on the date of the article. The fundamental problems in the equity, futures and derivatives markets have not been fixed, nor has monetary or fiscal policy been placed on a road to sustainability.
Market Fairly Valued
Common sense methods based on the ratio of the S&P 500 index (SPY) to GDP suggest the market is fairly valued. Morningstar maintains a market level indicator which presents the same conclusion.
Under these conditions, long-term nominal returns arguably would be in the 7% area. I've been investing on that basis.
It's well known that the standard deviation of the market is greater than the long term average rate of return. While the market goes up more often than it goes down, when it goes down, it goes down faster and further than it goes up.
The more I think about it, the less I like the idea of being fully invested in the market, looking at best for 7% long-term, when a (hopefully temporary) short-term loss of 25% to 40% is logically possible.
Wall Street is not a nice neighborhood. It's high in fraud, abuse and manipulation. There isn't any reason to go there unless low valuations stack the odds in your favor.
17.5% on my discretionary portfolio is good enough for 2013. Money I won't need during the next 2 years can stay with Vanguard in index or mutual funds. But the money I use to try to beat the market can use a rest. Somebody somewhere said that money is like horses, if you run it too hard you have problems.
Planning for 2014
There are an awful lot of issues lying around half-dormant. Let's see how they play out before planning the next campaign.
Disclosure: I am long SPY.
Additional disclosure: I maintain a position in the S&P 500 via a Vanguard Index Fund.