Anatomy to long term superior performance.
A market rut or a trap to long term lower returns?
Over the many years I have never been very good at predicting with good timing major downturns; then viewing to get out in time. In 2003 I traveled to the US for months and it was obvious to me they were experiencing a real estate bubble, which I wrote about here. But had I advocated selling out in its anticipation, I would have been many years too early. A year ago I here stated to raise cash and get into some high yielding property funds like into the BBL short term money market fund which I visited in person and wrote up while in Bangkok. Also stating to slowly over weeks/months to come accumulate gold at then sold off levels. Gold, priced in US$, has held up pretty well as the Baht weakened some 9% since. Its been so a near cash equivalent to Thai Baht investors. All 3 of these alternatives are now a great cash cushion to be used as you see fit in your particular situation and time frame.
See this article back then:
https://thaistocks.com/content/short-term-cash-management
Yet the SET market for some Q.'s kept flirting with 1600 and nice gains where continued to be made until say end of May this year. In January a long member stopped -and moved all into cash stating the "next crisis would come from USA". I dared to counter him on USA. Today, he was right but for all the wrong reasons. My long US and EU trip earlier this year and into the 2Q. affirmed I was taking a step back, but I never stated here I turned outright stock bearish. In July this year I wanted to stop publishing a model portfolio, being apprehensive on various fronts, but more than half the members here which commented, talked me out of it. Surely, members don’t subscribe with contributions only to then read that I don’t view anything attractive anymore and no longer run models. And I did/do not as my new model is in place. Surely, my stated investor objective has always been middle to longer term assuming no margin loans and no short term other financial commitments as we never know on timing. The value investor knows there can and are dire setbacks along the way yet rides it through. I think Warren Buffet, a famous value investor, stated that a stock investors which can’t tolerate at some point to be down 50% on paper, should not be in the market.
There are also many studies which show that investors which try to time markets, by getting in and then out, very often get whipsawed over the years. If you miss some of the big upturns along the way, you cut your long term performance by a huge margin. Also, if you sell out you got to be right twice, when to sell and then when to buy back. Timing is everything. I for one am not that wise. And what about all those which sold out years ago already, sitting on gold or 1% returning cash? Long term experience shows that too many which sell out, then pad themselves on the back, far too often fail to get back in, on time. During the horror financial crisis of 2008 some wanted to get out against my view, only to then weeks and months later regret they did not (get out). But, barely a year or two passed and they were grateful they stuck with it while getting dividends along the way. Yet, this same theme did not work during the 1997 Asian financial crisis -as it took years to come back. That is, unless you hid it out in Thai export small cap stocks which at the time did very well and was one reason for the start out fame here, as that is what I advocated back then.
So where are we currently? Nobody knows, but my bet its this will also pass. While it can be argued China was in some sort of bubble, the world sure has not been. Just the opposite, its economies bottoming along with no excesses -and no inflation. Except now the experts will say, excesses was in stocks. But when interest rates are at ultra low levels for a long (historical lows), see below link, then p/e ratio’s should be high. In finance we can prove these are and must be inversely related. I so just dont' understand all these valuation guru's which tell us stock are overvalued. In fact interest rates are at multiple century low record low levels. See this article:
http://www.smh.com.au/federal-politics/-gj6x83.html
Is it now really wise with many dropping currencies and yields ever more meager to just sell out for cash into those weak currencies and ultral low interest yields? This instead of just holding still our overall well selected companies & diversity and tolerate the current down draft. I think not. My view is to stay put & do nothing. Instead view bargain hunting for the long term on a group of good companies, a wiser alternative during these record low interest and inflationary times. Its one reason I viewed holding cash ever since mid last year 2014. That seems to be my strength over time, staying put with overall good selections. Not calling erratic markets swings, that I leave to others. Having said all this, I do recognize there are times to be out of the stock market all together. (Wars, super inflation, depression etc..), but my call is now is not one of these times from this point on. I hope I won't eat these words as if I do we are all in trouble.
Best Regards,
Paul A. Renaud.
