Roger Nusbaum submits: Question: You had spoken extensively about criteria to reduce equity holdings in a portfolio: Is it time to increase equity exposure? What is your criteria? Do we end up buying back-in at higher levels?
Tough question. The simple answer is to buy when the market goes back above its 200 DMA . But I have not done that this go-around, and I have lagged this move up from 1220. Lagged — not missed. I am about 75% invested, but have not gone back in.
For now, it looks wrong. The question is: Does it stay wrong? The yield curve inversion has been getting deeper, and the rally has come on little volume. Internals have deteriorated for most of the move (per Michael Kahn), and thus far the market has done exactly what a lot of people said it would, which is to rally but make a lower high. So far they are not wrong.
I should have been more invested. I took a defensive stance. I have written a lot about not having too much cash. And while some days it does feel like I have too much cash, the things going on right now almost always lead to a bad market. Could this time be different? Of course. That is why I have much more than a toe in the water.
This is a situation where since I know how the markets have reacted in the past, I am only partially defensive, which means the consequence for being wrong will not be altogether bad.
Also keep in mind that if you have read my thoughts for any length of time, you know I am not focused on trying to be right this week.
Lastly, I would add that like with any call this one will be right or wrong. Being wrong absolutely goes with the territory. I think being a good manager includes not having the portfolio's success too levered to the manager being exactly right every single time.