I sold 15% of my portfolio in the last two weeks, and just mapped out prices to sell another 30%. I figure cash (or maybe a Z3 Roadster) is a better investment for the next five years than stocks. Anything I look at I think, yeah, it might look cheap relative to the market, but I have no doubt I'll be able to get it cheaper sometime in the next couple years. My point is this. The market is insane on a historical basis. Whether you're looking for a 10% correction, or the mother of all "corrections" (30% sounds good to me), our attention as value investors should be on selling, not buying.
Heres my case for a major drop.
1) Overvaluation on a historical basis. I have said for the last 5 years I would sell most of what I own when the P/E of the index hit 20. It did a month ago.
2) Total complacency. Even value investors have thrown in the towel and bought because they are scared to death of underperforming the index. I'm talking institutional money. I know what I'm talking about - I work for a value manager. Even value managers are in the "Nifty-Fifty" stocks and are scared to hold cash. If the market were to drop 20%, these would be your natural buyers. BUT THEY HAVE NO CASH. There would seem to be no floor if something goes wrong.
3) The market valuation is based on the best of all possible worlds. Low inflation, booming economy, money flowing into stocks. If anything negative happens, KABOOM.
While Mike did not set up this site to be a debate on the market's ups and downs, (and I do not want it to become such because so much of that is a waste of time) will anybody fight me on this. This isn't just hot air, I am in the middle of selling half of my portfolio right now.
I'm not saying this is the top. All I am saying is that the bottom is somewhere south of here. Therefore cash is a great investment if you are willing to buy when everybody else is panicking. |
