John Hussman, PhD, aka The Perma-Bear:
“At its core, investment is about valuation. It’s about purchasing a stream of expected future cash flows at a price that’s low enough to result in desirable total returns, at an acceptable level of risk, as those cash flows are delivered over time. The central tools of investment analysis include an understanding of market history, cash flow projection, the extent to which various measures of financial performance can be used as “sufficient statistics” for that very long-term stream of cash flows (which is crucial whenever valuation ratios are used as a shorthand for discounted cash flow analysis), and a command of the basic arithmetic that connects the current price, the future cash flows, and the long-term rate of return.
At its core, speculation is about psychology. It’s about waves of optimism and pessimism that drive fluctuations in price, regardless of valuation. Value investors tend to look down on speculation, particularly extended periods of it. Unfortunately, if a material portion of one’s life must be lived amid episodes of reckless speculation that repeatedly collapse into heaps of ash, one is forced to make a choice. One choice is to imagine that speculation is actually investment which is what most investors inadvertently do. The other choice is to continue to distinguish speculation from investment, and develop ways to measure and navigate both.
My comments: 1 of my Key indicators has the market oversold (Bullish) in the short-term, and 2 of my Key indicators are Very Bullish.
But some portfolio management processes have switched from “buying dips” to “selling rallies” as they do not see the rally as a having marked a bottom and reversed the trend.
If you feel that way too then use rallies to:
- Re-evaluate overall portfolio exposures.
- Use rallies to raise cash as needed.
- Review all positions
- Look for opportunities in other markets
- Add hedges to portfolios
- Trade opportunistically
- Tighten up stop losses.
There remains a Bullish bias which believes the Q-4 Y 2018 action was a correction in this ongoing Bull market. Some players say there are ample indications that 10 year Bull run has come to its end.
If the Bulls. are right, and I believe they are, remove hedges and reallocate back to equity risk accordingly.
Remember, always take what the market gives.