Should we be greedy or fearful? I really don't know. This is one of those confusing times. When the markets crashed all over the world due to COVID-19, I thought it was a good time to be greedy. But soon, the markets recovered some of the losses making it a confusing time. If markets don't fall down deeply, there is no way to properly time the market, which is what I like to do. In the current situation, I can do nothing much but keep my asset allocation the same as the markets move sideways.
A falling market presents opportunities to buy good quality stocks for the fund managers of mutual funds. So that also happens to be the time when I like to allocate more to equity mutual funds to increase my chances of making some good returns. But given the quick recovery and a few other signs, I am now not really sure what to do. Even worse, the current situation with Franklin is causing more troubles for my portfolio.
The confusing signals
I follow and respect the thought process of a few people who subscribe to the Benjamin Graham philosophy of investing. One of those people is Warren Buffett CEO of Berkshire Hathaway, along with Charlie Munger of course. Another one is Howard Marks co-founder of Oaktree Capital Management. And finally Rajeev Thakkar, CIO of PPFAS mutual fund. Generally all three agree on the market condition and whether we should be greedy or fearful. Only this time, most of them are pointing to uncertain conditions. Neither signalling greed or fear. That is a cause for worry.
What is Howard Marks Saying?
The latest memo from Howard Marks talks about uncertainty at length. If something like this is coming from a person like him, everybody needs sit up and pay attention. The mood changed from
The world will be back to normal someday, although today it seems unlikely to end up unchanged.Howard Marks memo -- March 31, 2020
It's more uncertain today than at any other time in our lifetimes.Howard Marks memo -- May 11, 2020
in a matter of 6 weeks. From investment perspective, it went from "be greedy" to "uncertain" territory in a short amount of time.
How about Warren Buffett?
Generally Warren Buffett gets into action when the markets have fallen significantly and value emerges in businesses he tracks. Every one though Warren would do something big during the crash with his huge stockpile of cash. But nothing of that sort has happened. He was ominously quiet. Later Charlie Munger mentioned that no one was calling Berkshire for capital. Unlike during the 2008 crash, this time around, the governments were front loading liquidity and stimulus to the point that companies are able to manage finances without calling Berkshire.
Finally, in the latest annual meeting, Warren and Charlie seemed to be more fearful than greedy. That is a cause for concern. Are the markets not bad enough to be greedy? Is there more bad news to come?
Why is Rajeev Thakkar buying everyday?
It was quoted that Rajeev Thakkar and team "have been buyers every day". This looks like greed which is how I would have thought during the crisis, but it goes against Warren Buffett and Howard Marks. This is even more confusing. When asked about Warren Buffett's cash pile, Rajeev said that given the nature of business (insurance), Berkshire wants to ride the storm before investing. Because they may have to pay a lot of insurance claims due to the virus. Since PPFAS does not have that issue, they are net buyers.
What do I make of this?
I am not clear. Some signals are pointing me to stay with cash while other signals are pointing to investing opportunities. For better or worse a tie breaker decision has emerged for me. Which is to stay with cash :). My hands are tied since most of my cash investment is in now ill-liquid Franklin fund. I am just sitting and watching. What about you?
While no one can perfectly time the market or predict where the market is going, between Charlie Munger, Warren Buffett and Howard Marks, they have 100 years of experience watching the market. So they probably know a thing or two. Having said that, please don't blindly follow what I am doing or about to do because my analysis is mine, understanding the risk I can take. You should not follow and burn your fingers. It is not like I know any better than you. Do your own analysis, talk to your financial planner, understand your risk and then take action. I may write something today and do something different all together tomorrow. You have been warned!