Re: Liquidation mode
I don't consider it courage, I consider it common sense. But ask me that question again in six months if the market doubles again!
As a scholar of value investing, I have done a lot of reading on market bottoms - what stocks look like when you can really steal them. That sounds like Japan today. It sounds EXACTLY the opposite of what I am seeing every day in the US market.
Lately I have been doing some research on market tops. What I have concluded is that the psychology today is extreme. And so is the valuation. Warren Buffett implies strongly that he has not bought a stock in a year and the media trumpets his words (which any Buffett scholar would have read as pro forma) that the market may not be overvalued, though it lacks a margin of safety. My own mother will enthusiastically buy anything I tell her to buy, but will not listen to my sell recommendations because my last couple sells went up further after she sold. I work for a deep value fund that is scared to death to hold cash and "risk" underperforming the S+P though every portfolio manager is in cash personally. Thats what our clients say they want. If deep value investors have no cash, who is going to "buy the dips"? An interesting question. Ah, the individual investors. But I know more individual investors who are on margin than in cash. What if the market goes down, guys? Oh, we'll buy the dips. With what? More margin? Can we say uh-oh?
What really scared me though was when the Wall Street Journal published an editorial (not by its own staff) two weeks ago saying that the market is not overvalued, in fact it is at half its real value. Because equities have no risk. In finance speak, equities deserve no risk premium. That is an incredible argument, and I can remember the last time I heard it.
I worked in Japan as a real estate analyst for a major U.S. securities firm in 1994. Our clients (the Japanese banks and developers) had already been brutalized, and they were starting to face what they had done wrong, buying both U.S. and domestic Japanese real estate for twice what it was worth under the most optimistic forecast. What they told me after a few rounds of sake was that they had assumed that real estate was a special case, that it would go up forever. In 1989 they thought they had demographics and finance to back them up, but in hindsight their forecasts were absurd. And they have still not recovered ten years later. I am a 29 year old securities analyst, the kind that has never seen a bear market. But I have. Because I covered the Japanese from 1991 to 1995. It was ugly, and it still is.
To repeat my last post, I am in the process of selling at least half of my U.S. equity position, which I have never done before, and reinvesting half in an Asian closed end at a discount to NAV and half in cash earning whatever cash earns.
I am not scared...any more. |
