After some thought, I’ve decided to exit most of my stock positions in the USA except for one relatively small and extremely unpopular company that appears to be deeply undervalued. My portfolio now consists of: the aforementioned company, a basket of six small companies in Asia, and 77% cash.
Although my cash position has remained extremely high this entire year (fluctuating from ~30-60%), this is an even more extreme position whose conservatism is based more on a “market call” of general overvaluation than the merits of individual securities. While the few companies I sold (i.e. Google) still don’t seem terribly expensive, valuations for the broader market remain extremely high, exceeding the extremes of 1929 and 2000. More importantly, investor euphoria and mindless speculation, which seemed to be abating only a few months ago, have come back in full force.
Logically, it doesn’t make sense to sell the stock of an individual, seemingly undervalued company based on broader market overvaluation. But, if everyone in your community has COVID, and you have cold symptoms, you probably have COVID. Similarly, it seems foolish to assume that any individual company I am looking at is immune from the pandemic of overvaluation; at the very least, a larger margin of safety may be warranted.
The history of investment success in “market timing”, which I fully admit I am doing, is poor. Studies have shown that it is far better to have “time in the market” instead of trying to “time the market.” But I think I would have far more regrets from not proceeding down this course of action than otherwise, even if stocks were to continue to rally. The weight of evidence that we are still in a historic bubble is impossible for me to ignore.
It is fair to ask what would compel me to buy back into the market. For example, if I think Google is “cheap” now, and I am not buying, when would I ever buy? The answer is, “I don’t know.” I continue to feel that, when the time comes, it will be obvious. But, lacking that certainty, it seems safer to do nothing.
It should be emphasized, again, that this is not investment advice. This is merely a snapshot of my current thinking, and I may change my mind tomorrow. Please do your own research and formulate your own opinions.