Friday File: We’re All Doomed! Maybe!

Some bearish thoughts to calm the soul... plus updates on Real Money Portfolio stocks SAFE, ZAYO, Kweichow and Fairfax India

By Travis Johnson, Stock Gumshoe, April 12, 2019



As the market comes close to new highs again, I’m strangely finding some solace in more bearish views. My Real Money Portfolio is doing just fine, thanks, beating the broader market by about two percentage points since the beginning of 2018, but I’m also keeping a substantial cash allocation and have money allocated to hedge-y things like gold and my S&P put options that have been a drag on the portfolio… so I would have done better just picking stocks and ignoring the downside risks.

That’s now how things work, though, at least not for me — the fact that I have some hedges in place is what lets me hold on to large equity positions in stocks with rich and risky valuations like The Trade Desk (TTD) or Okta (OKTA). I like the companies, and I think they’re doing the right things, but at 20X sales (or more) I would have been selling on the way up if I didn’t have some downside protection from a crashing market… because if the market does suddenly drop by 20% someday, for whatever unpredictable reason, those are the kinds of stocks that will fall by 50%.

One interesting long-term-bearish perspective that I’ve noted before in this space is John Hussman’s — his mutual funds did terribly for a long swath of this bull market, an error he admits in retrospect as being largely driven by a failure to account for the truly remarkable
impact of “free money” and investor sentiment in the form of persistently low interest rates. He often brings some good historical perspective, and his latest commentary for April is a good example of that, calling out the fact that in terms of many of his valuation metrics we are in an era now (and have been for a year or so) that compares only to past bubble peaks in the market in 1929 and 2000.

Here’s a little excerpt from Hussman’s commentary, which carefully does not say that we’re now at a peak (no one’s going to get that call right, anyway), but notes that going along with the market or increasing your exposure to “speculation” means you’re going along with something crazy and historically almost unprecedented, so you need to be prepared for when it ends:

“We presently have a financially disfigured economic expansion that’s three months shy of the longest in ...

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