We make our investment decisions based on price, both absolute and relative, rather than on trends and prognostications. So we don’t devote a lot of time to reading the tea leaves, or any other form of short-term market prediction.
That said, we are aware of investment sentiment. We have recently moved our cash position higher, but equities remain the bulk of our portfolios at most risk levels. So we are very much aware of the fear, never far from many investors’ minds, that any market downturn will turn into another profound decline like 2008-2009.
On that front, I received three pieces of information this week that seem to me cause for at least guarded optimism about the stock market. All are reverse indicators — gauges of investor sentiment from sources reliably wrong about the market.
First, the small-investor indicator. The shuttle bus driver who took me from the airport to my car on Tuesday, hearing that I am an investment guy, told me that he had just told his wife (a schoolteacher) to move her retirement account from stocks into cash.
Second, the always-wrong client, of which we happily have only a few. In this case, the son of a long-term client, who inherited her portfolio when she died, called Monday to complain about our failure to get him out before the decline. He does this at every market bottom, just as he calls to complain about having too-high a cash positions at every market top.
Finally, Jim Cramer has been increasingly bearish of late. Less than two weeks after dismissing market fears on June 14 (Market Rigged? If you Can Make Money, Who Cares?), Cramer has been getting increasingly panicky as the market has sold off. On Monday, he told us that: The Market is Getting Crushed from All Sides. Tuesday morning, hr pretty much threw in the towel. Cramer’s Smart Money piece was titled A Perilous Backdrop, and it pretty much detailed how the entire world is doomed, on the brink of revolution or collapse.
Of course, right after Cramer’s descent into full-on panic on Tuesday morning, the market rallied and closed higher. To me, the fact that Jim Cramer has a television show is another sign of the apocalypse, an indication of our culture’s substitution of spectacle for reason, of the relentless focus on the short-term at the expense of the long-term.
Our numbers say that the market remains on the expensive side, though we know for sure that it is at least 5% closer to fair value than it was three weeks ago. We are long-term investors. Bumpy rides are part of the trip.