The Asset Allocator: Investment Decision-Making In An 'Everything Rally' (Podcast)

Summary

• It’s never a good idea to invest as if the world is about to come to an end. You’d have been wrong every time so far.
• The best approach is to prepare for bull and bear markets simultaneously. Take risks (i.e., stocks), but take precautions (i.e., cash) as well.
• When considering which risks to take, know that your ability to perform an analysis is compromised by the expectation that the Fed will always step in to rescue the markets.

Photo by CreativaImages/iStock via Getty Images

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The Fed’s interventionist policies are the primary source of our current “everything rally,” and it is this same factor that will eventually upend it.

This podcast (7:50) argues that discounted cash flows and other tools of fundamental analysis are compromised when the so-called risk-free rate of money has been openly distorted for so long, and makes the case as to why other factors are worthy of consideration. It also suggests that investors always be prepared for risk-off scenarios.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Comments

[A Young Financial Advisor]

Do you think is late to enter the value trade? My portfolio is heavily exposed to tech with little exposure to value/ traditional companies. And if not what type of plays would you recommend?

[SA For FAs]

@A Young Financial Advisor I think value is ultimately recognized, and no it's not too late to make such investments (avoid trading) because the market typically ignores some good companies for one or another reason. Ambev is a case in point. It seemed like a screaming value, yet has fallen even further in the two weeks since my podcast. And yet...today's glowing Q1 results will likely send it flying when the market opens. There will be other such stocks. Pay attention to a variety of analysts and withhold judgment until you've followed them long enough to appreciate their thinking and feel you've found someone from whom you can genuinely learn.