From the May 2010 newsletter:
You may be wondering what trading I’ve done over the last few weeks with the recent volatility in the stock markets (S&P 500 below).
Well, my answer is very simple, I have done very little. When I point out evidence showing that very few investors succeed in beating the market by picking stocks or timing the market, I am not exempt from that reality–no matter how smart my wife tells me I am every night.
What I am comfortable with are measured long-term bets based on valuation metrics mentioned previously: Q and P/E. Based on these metrics, the US stock market is still overvalued and we are most likely in for below-average returns over the next 10 years. So for my clients, I have used a lower US stock allocation for any new investment over the last few months.
However, these below-average return estimates for US stocks are still higher than typical cash and bond returns, so this bet is primarily for risk reduction, not necessarily for higher returns. Although if we do see another serious market correction within the next few years, it would give us a chance to fully invest when return prospects are more attractive.
If you take anything away from this, it should be that there is very little you can gain by watching the markets on a daily or weekly basis. There’s nothing wrong with setting a strategic asset allocation, and checking your portfolio against it once or twice a year.