Lucked Out


Some fund managers celebrate a 1% outperformance of their benchmark over a year. The Marcus Today Growth SMA has outperformed its very demanding ASX 300 Accumulation benchmark by 23% in a month and is down just 6.1% from the top and that's before the bounce this morning. Most of that performance has come courtesy of a 70% plus cash holding on the way down.

As of today, we have lucked out because no-one really knew, there was a large element of guesswork. But we were due a bit of luck after prematurely cashing out last year and getting it (mildly) wrong and after being scarred by the 15% correction in October 2018. We learned some hard lessons through those big call experiences, it's paying off now and I would like to think there was a little bit of skill born of experience involved in our recent timing. 


We went to 45% cash in the first two days of the correction, 65% the next day and 70% after a week. We kicked ourselves for not going to 100% cash as we prematurely did last year - we actually had some criticism for not doing so whilst Hamish Douglass was talking about it being OK because he was in 15% cash.

As you have hopefully read, on Tuesday we reduced the cash asset allocation from 70% to 40% and on Wednesday we went (almost) “All in”. 93% invested is pretty much all in.

Net result - Cash is down from 70% to 7%. We have caught the best three-day rally in the US market since the 1930's.

As I wrote this week:

"Don’t worry, I am as smart as you, I know this could be the hokey pokey, I understand that this could be a dead cat spike, a false dawn, I know there is a very good chance that the bottoming we are seeing this week could be reversed the next and I understand that there is a road to be travelled with COVID-19 that we have only just stepped upon. Every bear market is punctuated by large spikes, the biggest rallies occur in a bear market not a bull market and here's another. The Dow had its biggest ever one day points gain this week and the biggest percentage rally since 1933. But maybe this is the bottom. Peak negativity will only be obvious in hindsight, we know we may not be there yet, but our judgement is that we have discounted an Armageddon that may not happen, the market is not going to wait on ceremony and if we don’t act quickly we’ll get left behind."

This is not a big call, it's not a declaration that "this is the bottom". We are not trying to get clicks. We know this could be wrong, of course it could. This is simply a decision we made earlier this week that we saw the risk of a short sharp large rally in the market and we didn't want to miss it


For those who think we think this is the bottom and are now wrapped in pride about that view, let me make it clear - we are utterly prepared to go to 100% cash again tomorrow if we need to. The best you can do in this uncertainty is to wake up every morning and make decisions. There is no playbook for this historic moment in the market.

We are not wedded to the current "all in" call. Since 1960 there have been twenty-five, 15%-rallies in the US in a bear market. We've just had a 23% rally in the Dow Jones:

Our market is up 17.53% before the open this morning:

It is very important at this time that we and you watch the herd not become part of it. As I wrote at the weekend you will not make any great decisions if your head is in the same space as all the other headless chickens. You have to stand aside. Watch, listen. Nod. This is a time for Spock like cold assessment, not emotion. Be Spock.


As you can see from the emotional comments on the bottom of every COVID-19 article, in the middle of these moments of extreme uncertainty there is a spectrum and everyone is on it. It runs from Super Bear (we're all going to die) to Super Bull.

The people at both extremes can't help but express their strong views. But we believe that having a view (about COVID-19) is the biggest mistake you can make at the moment. You cannot afford to have one. It requires faith-based on shifting data and faith is a failure in the stock market. We try to avoid being on the specturm at all, having no view. Instead we are watching everyone else on the spectrum and remaining cold, like Spock, unemotionally watching the volatility in sentiment and making decisions when the collective sentiment shifts. Investors should not be taking a view on how bad the COVID-19 crisis is going to be, because you don't know. Instead, we try to observe and react to the market.

Listen to any financial market commentator. You will hear two types. Those that are talking about COVID-19 and how bad it is going to be which requires them to guess (they are not medical experts), and those that are talking about market sentiment. You can ignore those with a view about COVID-19. They don't know they don't know. Fund managers need to stick to what they know - watching the market not passing medical opinion.  

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