On Wednesday night this week I arrived home from work. My wife had heard on the radio that global stock markets were puking up a storm (wait till she hears about what happened today) and assumed I would be in a bad mood. I said, "No, not really. We are sitting on so much cash in our client portfolios that I am actually in a comparatively good mood".
Sure, no one likes to lose money...ever...but unless you are 100% cash, it would be pretty hard not to lose some the past two weeks. What we try to do at High Rock is a ton of macro research on the state of the world and global financial markets and then marry that with some micro research on individual companies and then finally we create portfolios that are well-diversified across various asset classes and geographies (we are likely never going to hit home runs here but nor should we strike out).
So then she says to me, "Well why are you sitting on so much cash and what did you know that others didn't?" (I am not making this up!). I responded, "Gov't bonds and corporate bonds lead all financial markets. Remember in June and July when the High Yield portfolios I manage for Scotiabank were getting monkey-hammered, and I was in a really bad mood? And Gov't bonds we owned were on fire going up most days? Well, those were our tell-tale signs of trouble to come in stocks, so we remained very underweight. And Scott and I saw all of this because of our bond market experience and our hard work each day doing research." (see Scott's blogs and our weekly webinar)
And then she asks, "when will you buy stocks?" I answered as simply as possible, saying, "we will gradually start to buy stocks very cautiously and only if we see the stock market starting to provide more relative value". I added, "we feel that there are many complex economic events occurring right now that investors haven't seen for 85yrs and what worked in the past may not work quite the same in the future.
"What are you so worried about", she asked. "Well, losing money", I said, but added, "we are somewhat worried about:
Her response? "Hmm, OK, just don't lose us any money".
My reply? "Yes dear".