Think Macro

Drawing up parallels is one way of arriving at investment decisions. In similar scenarios during the past, the stock market behaved identically. There are phases when investors shift gears and change tack very quickly. Investors seem set to come out of their investment strategy of 2015 and head into a refreshingly new approach in 2016. The setting is perfect for a transformational approach to investment strategy. Macro numbers looked improving, inflation is stable and interest rates are off their peak. The stock operators seem dormant and it is the operators of stocks who principally distort valuations. Markets are discovering prices more harmoniously than before. When the bulls dominate, stock prices become expensive. When the bears prevail, the stock prices sell cheap. In the absence of both, valuations appear moderate and attractive. From experience, this moderation always leads to one final capitulation. That capitulation seems to be happening now. Buying stocks during this phase of moderating valuations is a safe way to raise one’s equity exposure gradually. If the capitulation happens as we see it, investors must swiftly switch gears and hasten buying. When the operators are away, prices are least manipulated and valuations are modest, investments happen in an orderly way. Large Cap stocks currently seem under-owned and this will hasten the transformation in strategy. A transformation will have a serious bearing on long term valuations of stocks. Great portfolios are always built in bad times. Fear is an important investment decision variable. When there is fear, we must invest in greed. These are times to be greedy.

“A hugely profitable investment that doesn’t begin with discomfort is usually an oxymoron. – Howard Marks.”

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