I’ve been writing cautious pieces here for the past few months even while stocks have zig-zagged higher. I’ve written a bit about market timing and what I mean by “reducing risk” just to give some clarity to the discussion. That’s the “how” but I thought I should explore the “why” a bit, as well.
I’m not a mutual fund manager, broker nor even a traditional financial adviser. I manage the capital of only a handful of families and I see it as my number one job to protect their financial security. They don’t pay me to sell them investment products, beat an index, abandon true investing for mindless diversification or follow the Wall Street lemmings down the primrose path. I manage their money exactly as I manage my own so I don’t take any risk at all unless I strongly believe it is worth taking.
Right now there are all kinds of risks facing equity investors: stocks are extremely overvalued, momentum is waning, macro forces are turning negative and sentiment has become dangerously frothy. And for what potential reward are investors accepting all of this risk? 3% returns? In the words of Todd Harrison this is like ‘picking up dimes in front of a bulldozer’ and it’s a game I’m not willing to play.
As I’ve written before, I don’t believe in market timing in the sense of calling exact tops and bottoms. I do believe, however, that it pays to know when to be conservative (in 2007 and during times like this) and when to be aggressive (five years ago). I have built my career on this philosophy and it has served me well for a long time.
So that’s why I’m “bearish.” As for why I’m writing so much about it, I’ve seen many people hurt over the course of my lifetime because they weren’t willing or psychologically able to be cautious when the crowd was euphoric. One reason I write about my willingness to do so is that it may hopefully help a few folks avoid their fate.