Author Topic: What do folks think or do while markets are at highs?  (Read 2765 times)

villainx

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What do folks think or do while markets are at highs?
« on: March 01, 2017, 08:10:55 AM »
I've been through a few cycles, but do the current market highs lead to any new thoughts on investments?  I started investing heavily during the highs in 07, and was lucky to be in fairly resilient companies/industries so muddled through passably.  I haven't had to "hedge" (other than some diversification) because the recovery seemed sustainable.  But is there a time to start considering adjusting the portfolio?  I mainly hope to learn or not miss learning any lessons from 07-09.  Or do most folks just try to stay consistent with the process and - while not ignoring - not overthink current market conditions (or otherwise believe current market conditions are ok)?


Cigarbutt

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Re: What do folks think or do while markets are at highs?
« Reply #1 on: March 01, 2017, 09:10:13 AM »
To be or not to be, that is the question.
I'm wrestling with that question also now. I'll give it a try.
First, are markets high?
Even if markets are high, easy answer is to guide decisions on the long term outlook of your holdings. So, keep them unless overvalued++. Here, it depends where your trigger to sell is.
The harder answer is to lower your trigger to sell (ie more la Graham). In general, a lower trigger definitely helps to avoid market collapses but 1- significant deviation to the norm may occur for long periods and 2- sometimes markets can remain irrational longer than you can remain solvent (Keynes) and then, you may miss out on compounding for some time. Maybe the worst scenario is to change your mind at the bottom or the top (a certain CDN company comes to mind here).
It really depends on your criteria.
In my own anecdotal and personal situation (ie not worth very much), I don't find anything exciting now but my universe is limited. Also, AFTER this evaluation of opportunity set, I find many reasons pointing to high valuations. Many of my premises  though are influenced (biased?) by the fact by I hate debt and there is a LOT of that around these days. Allergy to high cash positions may also influence your decision process.
What is challenging is that you may have to wait for a very long time before validating your capacity to "manage" cycles. If you do try, my take is that you have to have very high confidence in yourself and be ready to be disappointed. Live and learn, some say. I personally think that is worth the try. Value investing is about buying low ans selling high, isn't it? Good luck.

kab60

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Re: What do folks think or do while markets are at highs?
« Reply #2 on: March 01, 2017, 11:06:38 AM »
I'm reading Talebs book Antifragilty and have been giving this a lot of thought. I don't give a shit about macro, way too complicated for me, but I would like a portfolio of companies that could take advantage of a downturn in its business and stock price - ie. growth via M&A as well as very opportunistic stock buybacks. That draws me to owner-operated companies without a lot of debt, but I don't really have many of those in my portfolio due to valuation issues (considering Auto Nation atm - talk about a cannibal). Instead I have some pretty levered entities which might hurt on a mark-to-market basis in a downturn but which have also provided me with some pretty large gains since I started two years ago (these levered companies I've flipped pretty quickly after they ran up). Sooo, so far I'm staying put and enjoying the rally. But I haven't experienced a real downturn yet and I'm thinking I might get shaky hands so perhaps it's a dumb strategy.

Haasje

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Re: What do folks think or do while markets are at highs?
« Reply #3 on: March 19, 2017, 02:13:47 PM »
I think it isn't a stretch to say at least large parts of the US stock markets are trading very rich.

I got out of all SPY stocks.

Short Low Vol ETF

Western World Treasuries seem very, very rich. I'm short Euro bonds. I dont think the thesis has much to do with market timing but more assymetrical risk/reward.

Like Kab I prioritize owner/operated companies, imitating Stah from Kinetics and its an important Taleb suggestion. I think the logic behind backing owner/operators vs agent operators makes sense. Kab is right they CAN trade at high valuations but I find that only currently true if you want to back owner/operators that are on a hot streak or with a very, very good reputation. Owner operators tend to do worse in bull markets so many are very cheap. I've completely loaded up on this "factor".

You can get David Einhorn, Dan Loeb, Ackman, Stahl, Howard Marks and others at very undemanding valuations. At micro caps etc. it hardly seems like owner operator companies trade at a premium at all.

What I really like about owning Loeb, Einhorn, Stahl, Marks etc. is these are either long/short or will likely benefit from market crashes while still having a real shot at creating value if the bull run continues although they are dogs to the market obviously.

Cutting back on some of the highly levered positions.

Looking hard to get more global diversification on good terms.


 




scorpioncapital

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Re: What do folks think or do while markets are at highs?
« Reply #4 on: March 19, 2017, 02:15:40 PM »
Define high. The fed balance sheet was minimal in 2007 it's 4 trillion today. That could quickly turn what looks high into quite moderate. Who knows.


TwoCitiesCapital

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Re: What do folks think or do while markets are at highs?
« Reply #5 on: March 20, 2017, 11:06:29 AM »
Define high. The fed balance sheet was minimal in 2007 it's 4 trillion today. That could quickly turn what looks high into quite moderate. Who knows.

I'm trying to follow what you're saying. You're suggesting equities would do well in an environment of exploding inflation due to monetary expansion?

scorpioncapital

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Re: What do folks think or do while markets are at highs?
« Reply #6 on: March 20, 2017, 12:26:53 PM »
They could be flat. But what is flat in that scenario? Flat could be twice the price, but not because they are more valuable, but because it now costs $2 to buy that $1 stamp :) So higher yes, but not more valuable.

CorpRaider

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Re: What do folks think or do while markets are at highs?
« Reply #7 on: March 20, 2017, 04:39:36 PM »
I think it isn't a stretch to say at least large parts of the US stock markets are trading very rich.

I got out of all SPY stocks.

Short Low Vol ETF

Western World Treasuries seem very, very rich. I'm short Euro bonds. I dont think the thesis has much to do with market timing but more assymetrical risk/reward.

Like Kab I prioritize owner/operated companies, imitating Stah from Kinetics and its an important Taleb suggestion. I think the logic behind backing owner/operators vs agent operators makes sense. Kab is right they CAN trade at high valuations but I find that only currently true if you want to back owner/operators that are on a hot streak or with a very, very good reputation. Owner operators tend to do worse in bull markets so many are very cheap. I've completely loaded up on this "factor".

You can get David Einhorn, Dan Loeb, Ackman, Stahl, Howard Marks and others at very undemanding valuations. At micro caps etc. it hardly seems like owner operator companies trade at a premium at all.

What I really like about owning Loeb, Einhorn, Stahl, Marks etc. is these are either long/short or will likely benefit from market crashes while still having a real shot at creating value if the bull run continues although they are dogs to the market obviously.

Cutting back on some of the highly levered positions.

Looking hard to get more global diversification on good terms.

Looked at the Loeb and Einhorn re's.  Might look at greenhorn more closely if he wasn't paying himself 2 and 20 off the top.  Not convinced of Loeb's after tax and fees skill/alpha.

rb

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Re: What do folks think or do while markets are at highs?
« Reply #8 on: March 20, 2017, 05:03:54 PM »
Looked at the Loeb and Einhorn re's.  Might look at greenhorn more closely if he wasn't paying himself 2 and 20 off the top.  Not convinced of Loeb's after tax and fees skill/alpha.
When you put greenhorn next to berkshire and you realize that greenhorn has nowhere close to the underwriting intellectual horsepower of BRK and you pay 2 and 20 on the investing side, BRk has to be trading at a ridiculous valuation to make sense of picking GLRE over BRK.

Haasje

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Re: What do folks think or do while markets are at highs?
« Reply #9 on: March 24, 2017, 09:22:06 AM »
"When you put greenhorn next to berkshire and you realize that greenhorn has nowhere close to the underwriting intellectual horsepower of BRK and you pay 2 and 20 on the investing side, BRk has to be trading at a ridiculous valuation to make sense of picking GLRE over BRK."

Did you really do this? Does it not matter where Greenlight Re trades as well?

"Might look at greenhorn more closely if he wasn't paying himself 2 and 20 off the top"

That's a weird way of saying you want to look more closely  :P