Earlier this year, I said that Winter was Coming. Given the continued rally in equities, I was proven wrong. Risk assets continue to rally despite rising calls of overvaluation, whether it is Shiller P/E, market cap to GDP, etc. Indeed, the mantra that valuation is no timing tool continues to hold true and those who use statistical averages at a macro level underperform. I've underperformed because the catalyst (taper) I was looking for happened, and markets continued to rally. As a result, I have covered all short positions and maintain unlevered positions in the companies I continue to like in the long term.
This is the closing of a trading view - there are views/positions which are short term (dependent on market psychology) and long-term (supported by fundamental productivity of assets). I lowered overall exposure and maintained short positions earlier in the year because of the former, but chose the individual positions on the basis of the latter.
The question now, is where to from here? Given that psychology (and price) drives behavior in the short term, I now focus on the continued hate of the market. The AAII sentiment survey as of 7/30/2014 shows a lack of enthusiasm for equities even as they rally. In the short term, this is a net positive as investing is not crowded. I therefore remain mostly invested.
Careful investing to all,
-Stanley
