12/9/18 Still Bullish After All These Years

After the straight-up move in 2017, it appears the market has decided on a pretty mean year-long reversion to the mean in 2018.

My portfolio balance has whipsawed between a decline of -2.5% (at least four times) to +6% (once or twice) - a relatively narrow range.  However, I've been able to trade 'successfully' (due to pure luck).  Relative to my benchmark (the global index, which I track using VT/VTWSX), I'm currently ahead by +7% - ie, the portfolio is up +0.5%.  (In January [during the parabolic move up in global markets], I was trailing my benchmark by -7% - so being ahead by the same percentage is a big deal.)

As of last Friday's close, I moved to cash.  I made the decision despite having made optimistic comments earlier in the day.

[12/7/18 @ 1117 am pst:

It's been a brutal few weeks for global markets.  All part and parcel of markets.  Sometimes they go down.

I try to avoid the news, as it's the nature of news reporting to generate an emotional reaction.  The recent meeting between Trump and Xi, followed by the arrest of Huawei executive Wanzhou makes for good stories and volatile short-term moves.  But what's the real story?  If you're an investor, it comes down to recognizing that both Trump and Xi have made tactical moves that will eventually result in a compromise.  It's the way business has been conducted for thousands of years.

It's all positive.  Relax.  Ignore the news and the volatility.]

[12/7/18 @ 1258 pm pst:

All positions off the table end of day.

How do I reconcile the above decision with my advice to relax?  The majority of you are long-term investors.  I think the global markets will do fine, and that here and now is actually a good time to buy and hold.  Closing my positions here and now is a short-term trading decision based entirely on risk management.  (Keep in mind that I am +7% above benchmark, and will be flat for the year end of day.  I'm simply not interested in heading underwater again.)]

So it came down to having experienced four declines of -2.5% in 2018 and wanting to avoid a fifth.

But what's my perspective on the market here?  

(a) Negativity hasn't worked well lately.  Despite multiple signs of capitulation, traders continue to sell the rallies.

(b) It's been a long nine-year bull market.  Economic signals are basically all good - but that's exactly when bull markets end.  

But what do I really think?

(a) Sometimes negativity will persist for a long time.

(b) The current bull market in global equities began in 2016 (following a brutal bear in almost all indexes outside the US).

(c) US indexes have experienced two significant corrections in 2018.  FAANG stocks are in a bear market.  I would even go out on a limb and say that the majority of US stocks are currently in a bear market.

If I were a long-term fund manager, my strategy today would be as follows:

(a) The current environment is confusing for the same reason(s) the capital markets are always confusing.  It's the nature of the game.

(b) It's probably a good time to buy.

(c) That said, I'll do my best to trade the whipsaws - with an inclination towards capital preservation. 

So what's the bottom line?

Given a choice, it's my opinion that global markets will rip higher.  The ultimate contrarian stance here is to do our best to find the eye of the storm, remain calm, and treat the current decline is an opportunity.