Stay Long but Watch the Ticks

Investing, whether aggressively or long term, is about averaging into a stance, whether bullish or bearish. Getting the timing exactly right when loading up or cutting back is a rare pleasure. As you will read, I am somewhat timidly moving towards a more fully invested stance. At this time I was gradually developing the confidence to build a major position in U.S. technology and was benefitting from being short Brazil and U.K. real estate.


July 26, 2010

I have increased my net long in equities from 50% to 75%, a posture I consider moderately but not wildly bullish. What has made me change my mind? I’m not making any money but it seems as though the clouds are lifting.

What has altered is that the economic data over the last ten days have been better than the experts’ expectations. The global economy is showing surprising resilience, and Europe, supposedly the sick man of the world, is actually accelerating. One swallow doesn’t make a spring, and the situation is still precarious, with whiffs of deflation, but the case for a soft patch rather than a double dip has strengthened. That’s what equity and credit markets are focused on, and to the extent it continues, stocks will move higher, government and high grade corporate bonds will sell off, and high-yield and emerging-market debt spreads will contract.

Investor sentiment about equities is still depressed, ...

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