Sometimes I wonder if the ‘cyber ears’ are listening? One day after I shared my thoughts on how investors should prepare their defense – Howard Marks – shared his latest thoughts on asset allocation. His post was the ideal follow-up to my recent post… where I talked about finding the right balance between risk and reward. Marks’ latest missive reminds us that the investment landscape has undergone a dramatic transformation in recent decades – where the popular “60/40” portfolio may not work in the years ahead… and now is the time to think more about defense (vs offense)
"Asset Allocation"
Defensive Sponges Soaking Up Liquidity
After enduring its worst week since March 2023, the S&P 500 rebounded with its best performance of the year. From mine, this kind of week-to-week unpredictability highlights the futility of attempting to predict short-term gyrations. It’s not something I pretend to be able to do. My approach prioritizes a longer-term perspective – as it increases the odds of success. It’s near impossible to attempt to trade around Mr. Market – you can never know what his mood will be from one day to the next. Therefore I choose to maintain a cautiously invested strategy – where ~65% of my capital remains in high quality stocks.
It Wouldn’t be September Without a Few Bumps
September has started in a very typical September fashion. Down! It’s traditionally the worst month of the year in terms of returns. But that’s not a bad thing… As longer-term investors – it’s great when things go on sale. That’s when we get to sharpen our pencils on higher quality businesses. And for those who missed out four weeks ago (where you needed to act fast) – it’s possible you will get another chance this month. As I wrote recently – the rapid 10% surge in equities over 4 weeks did not fill me with a lot of confidence…
Thoughts on the Rest of the Year
Over the past year or so – one of the key investment themes has been “bad news is good news”. Bad news implied the Fed was more likely to cut rates. For example, after the market incorrectly assumed we would see 6 or 7 rate cuts at the start of the year – the Fed have finally come to the table. In other words, the economic risks (to growth) are sufficient enough for the Fed to act. This is important. What happens during this transition is “bad news is no longer good news”. History shows us when economic conditions worsen during an easing cycle – stocks perform poorly. Therefore, the market’s primary concern now is whether the Fed has waited too long?
For a full list of posts from 2017…