I think it's instructional to reflect on how the market felt, versus how it feels today. This is a good old fashioned melt-up. The action is choppy, but you let a week or two go by and almost everything is higher. There is a persistent bid underneath during every sell-off. Three months ago, the floor felt like it was falling. If you buy, you are down 10% in a heartbeat. The proverbial falling knife was sharp and accelerating.
I've made a nice haul off the bottom, despite the occasional slash wounds. But since then I've pared back a lot of my positions, and days like today create performance anxiety. I feel like too much of my assets are in cash and bonds. The names on my watch list are melting up, while my cash sits, devalued day by day.
I've become a victim of the persistent bid.
Cramer is making a lot of noise about this being a new bull market. This certainly feels like bull market action. Meanwhile, I'm cognizant about the macro economy, which remains at 9-10% unemployment. The trick is to understand that the two are not perfectly correlated. They're not even closely correlated. They are eventually correlated, if you look at a chart that spans decades. It's why Ben Graham calls Mr. Market a voting machine in the short run, and a weighing machine in the long run. Or, as Keyenes puts it, the market can stay irrational for longer than you can stay solvent. Bottom line: I don't know what to make of this current market, whether to buy or sell. Performance anxiety be damned--I'll stay conservative.
One thing we know for sure: the bargains are gone. Risk has been repriced rationally. Go back to my Oversexed Guy In A Harem post, and compare the prices of the bargains I listed then and their prices today. WCC: $15 vs $26, BOOM: $7 vs $21, IPHS: $8 vs $16, ACMR: $1.40 vs $3.50. These are huge gains in a span of three months. We may not see something like this again for many, many years.
So the main takeaway is to reconcile our experience of then and now. Investing can be a complicated game, but in many ways it is fundamentally simple, as it is tied inexorably to human behavior. Remember what it felt like back then, in times of panic, and in retrospect, how easy it would've been to make so much money. Be fearful when others are greedy, and be greedy when others are fearful, says Buffett. It is that which is perhaps his most famous and oft-repeated quote, and not some archaic or complicated formula only decipherable by genius.
