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There will be an agreement in whatever variety of actions, so they be each honest and natural in their hour. For of one will, the actions will be harmonious, however unlike they seem. These varieties are lost sight of at a little distance, at a little height of thought. One tendency unites them all. The voyage of the best ship is a zigzag line of a hundred tacks. See the line from a sufficient distance, and it straightens itself to the average tendency. -Ralph Waldo Emerson, Self-Reliance

That is one of my favorite quotes. I contradict myself all the time. I tell individual investors to fire their financial advisers and put their money into index funds. Then I turn around and talk about how this style of investing is growing in popularity and it really worries me. I write about how investors shouldn’t try to time the market and then I write about how the stock market is very risky right now and they should “reduce exposure.”

My point in all of this is to simply think out loud and ultimately all of these winding roads (or differing tacks) lead to one place: a deeper understanding of the markets and my own abilities and limitations so that my investment process is constantly improving. That’s one of my main goals in writing this blog. Like a sculptor I keep adding a bit here or removing a bit there in an effort to refine but the work will never be done.

The other main goal in doing this is helping individual investors learn how to best invest their own money. In that regard, I get asked a LOT what does “reduce exposure” mean to me? I can’t tell you that. Everybody’s circle of competence is unique to their own experiences and skills. What I can tell you is whatever “reduce exposure” means to you make sure it’s well within your own skills to implement.

To be clear, I don’t think it’s ever a good idea to give up on stocks completely. If you own index funds “reducing your exposure” means just that – take your ideal allocation down a bit. So if you would normally put 60% of your portfolio in stocks maybe you reduce that to 50%. That leaves you room to take it back to 60% when stocks once again become fairly valued, as they surely will at some point in the future. Should they become significantly undervalued you’ll be in a position to increase that to 70%. That seems totally prudent to me.

Beyond that there are some really good opportunities out there in the market even if they are few and far between. Warren Buffett recently wrote, “in the 54 years we have worked together, we have never forgone an attractive purchase because of the macro or political environment.” Just because stocks are generally overvalued doesn’t mean you should give up looking for opportunities.

Speaking of Mr. Buffett, he’s another one prone to contradicting himself. The quote above comes from his latest letter to Berkshire Hathaway shareholders in which he advises:

Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle’s scathing comment: “You don’t know how easy this game is until you get into that broadcasting booth.”)

Clearly he hopes investors don’t remember the times in recent history in which he made macro market predictions. Most recently he advised “Buy American. I am.” in October of 2008 writing:

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

In other words, “it’s time to buy stocks.” And before that in November of 1999:

I think it’s very hard to come up with a persuasive case that equities will over the next 17 years perform anything like–anything like–they’ve performed in the past 17… This talk of 17-year periods makes me think–incongruously, I admit–of 17-year locusts. What could a current brood of these critters, scheduled to take flight in 2016, expect to encounter? I see them entering a world in which the public is less euphoric about stocks than it is now. Naturally, investors will be feeling disappointment–but only because they started out expecting too much.

For a guy who eschews macro predictions. He sure is good at making them.