Well, we just finished our longest series to date here on DQYDJ, about market valuation (and don't be scared if you find this post after 2013 - the calculations are either still sound or you're in some kind of a planet of the apes scenario. Good luck either way). Our conclusion? More than around 3% annual returns would be a success, likely accompanied by some epic company earnings growth. So, yes, I'm pessimistic - but hilariously enough... not bearish.
Here is that series for your reference:
See The Finale – What Does it Mean?
What Are You Doing About It?
Well, my friends, as some other folks can attest, I have a larger than usual amount of my portfolio sitting in cash. Now, like I just mentioned - that's a temporary situation, as I'm decidedly not bearish on stocks in general. I don't intend to sit on my hands for a long time, but dem's the facts, ma'am.
Something I've mentioned before in a few articles is that most of my portfolio isn't me investing in individual stocks. My normal policy is to avoid individual investments in foreign companies - as I've mentioned before (and as I'll surely mention again!), it's hard enough to keep up with the political, economic, and other news in my own country... let alone in Brazil, Russia and China. I've broken that rule a few times, such as with (since sold) Tata Motors, but as a general rule it's hard to hate. That also means that my allocation has changed lately to encompass even more 'passive' type investments - ETFs and Mutual Funds.
An Allocation We Can Believe In!
In the aforementioned series, I (uhh) mentioned that rather than panicking about our overvalued indicators it would be better to find an allocation you can live with if the seas get rocky. That means not going to 100% cash, burying gold and silver bars in your yard, or any other doomsday like plan - it means reallocating your current portfolio (or, perhaps, changing your inflows) to something market-hearty. You want to be cautious in the face of a reversal, but not so defensive you miss out on all the gains.
For me, I do feel there is a lack of obvious values in the American market. (I'm not alone on that point). Of course, the United States may be where I currently live - but it's truly only about 1/5 of the world's economy. Concentrating solely on the United States is rather silly - although as a general policy it's good to be overweight your home country (or the country you will retire in) to make currency issues easy to figure out.
So, back to the foreign stocks - I've now moved to a much higher percentage allocation than even 2 months ago. I'm down to only owning 2 American individual stocks, I've got a few materials ETFs for good luck (a low allocation) and a large position in something that doesn't come naturally to me - cash (and cash equivalents!). Assuming the cash doesn't eventually blow a hole in my virtual pockets, I'll be trying to put it into something - but haste makes waste.
So, no, I'm not trying to call a top. I'm still investing, and still pumping into foreign mutual funds and ETFs. However, I've got a much more USA-lite split than I've had at any point since 2009.
How Are You Shaping Your Portfolio?
So, there you have it - America-lite, Foreign-heavy (to be more specific, I've over-weighted emerging markets), and hopefully cash going somewhere useful soon. (It might help to look at your cash as an investment in liquidity as opposed to an under-performing asset class!)
How are you positioning yourself? And remember - it's best to have something you can be happy with in any market conditions, as opposed to selling off in panic on the way down.
