Author: Dan Plettner
Although global diversification has continued to detract from performance, July was generally rewarding across my various models. (Well Intentioned CEF Activism, Long/Short Opportunistic, Taxable Income, Core, MLP Direct Ownership)
The broad US market has shown tremendous resilience, somewhat unique among world markets. That performance flies in the face of commentary from well-known investors like Bill Gross and David Rosenberg, who are prognosticating that an “equity cult” is dead or dying.
Our cultural preference for equity investing has changed… for now. There is no arguing this fact. But the opinions Gross and other analysts hold may provide a contrary indicator.
In my perspective, it is extremist “funny talk” from the likes of Gross when they extend a current cultural observation and infer that historical equity returns are less relevant than changed tastes of the crowd. Do they offer a rationale? Sure. But accepting their analysis requires a great deal of suspended disbelief.
All other things being equal, I prefer an asset class after abnormally low returns have created a possible opportunity for regression to the mean. The times to have the greatest risk restraint in my eyes are when everybody thinks they should own equities, and when they already do. That appears to be the opposite of today’s situation.
There would be justification for the US market to take steps back in the short term. But the possibility of an upward trajectory in the face of excessive bearish sentiment warrants contemplation. One outcome I see as plausible is a “risk-on” rally of strong magnitude and duration. I believe such would be led by global equities.
As I’ve said many times, I do not have a crystal ball. I don’t know what will happen, or when. In the interim, I am not throwing history out the window. I still favor diversification, even globally. I still focus on trying to use particular securities which appear to be inefficiently priced to achieve overall allocations. I still favor using my rational mind rather than being obsessed by fear or greed. And yes, I still appreciate that Mr.Market taught me to avoid the likes of Facebook (FB).