I have been bullish on large cap U.S. equities since about November 2008. Perhaps more importantly, I have not wavered in my bullish view once. I think holding this view has been one of the hardest and emotionally testing experiences of my 15 year professional investing career!
Many clients have asked me as of late what is the one primary reason as to why I have held a steadfast bullish view on large cap U.S. stocks and always said during any weakness over the last three years that "any weakness should be seen as a buying opportunity rather than reason to sell"?
I have continuously talked about cheap valuations of equities over the last three years and as of late have talked repeatedly about the relative attractiveness of equities vs. treasuries. But equity valuations are merely a reflection of the confidence (or lack thereof) in the sustainability of future cashflows. That is, equity valuations are merely a symptom of an underlying condition.
The primary reason as to why I have remained bullish on equities for over three years now is the extreme low level of consumer confidence. Consumer confidence remains virtually unchanged on levels it reached at the height of the GFC. This is a very bizarre condition considering that economic conditions in the U.S. have vastly improved from those which existed three years ago.
Bloomberg Consumer Comfort Index
One of my "guiding" quotes comes from John B. Templeton "bull markets are born in pessimism, grow in skepticism, mature in optimism, and die in euphoria". I always ask myself this question "if everyone is pessimistic then who is left to become pessimistic to push down stock prices"? Judging from the level of the index above being pessimistic (being long "safe" assets like treasuries and bearish on "risky" assets like equities) is a very crowded "trade" and by default now becomes a highly risky trade!
While consumer confidence remains low, I continue to see any weakness in large cap U.S. stocks as a buying opportunity.
Disclosure: I am long DIA.
