And so it continues

And so it continues – the US market is behaving – for now there is no reason to question our market either. No opinion - I continue to watch people on the spectrum from Super Bull to Super Bear and resist being dragged to either end by someone’s particular view. Every day there are a few headline events, articles, occurrences and opinions that the herd gravitates to and the next day they are replaced again. We have to be very careful of adopting today’s vibe, buying into a position on the spectrum and sticking doggedly to it. Our game is to watch and react not take an opinion and stick to it. This is a time to listen, nod, observe and calculate, not join in. Star-Trek-SpockPredictable mean reversion – You will hear, in the press, on the media, from brokers, fund managers and even from my colleagues, comments like “the market is up 20% it can’t keep going up like this”. What goes up must come down apparently, because Isaac Newton said so. But in the stock market, after one of the biggest drops in a decade, it is predictable mean reversion human nature and of no value. This is why humans make terrible investors. You need to be a Vulcan. Logical. At the moment if I look through the stocks we hold, and the stocks we don’t hold, there are bargains galore. My only regret at this point is that I don’t run $1 billion instead of $40 million. There are a lot of fundamentally sound, quality stocks worth buying on their current technical set ups. Yes it may change, but for now, we’re happy to go with the tide. It's logical. Until the tide changes. Distinguishing between new inputs and ‘Past Post’ headlines - There are some very negative (mostly economic, some corporate no doubt) headlines ahead of us. The IMF has a couple for us this morning including “Global economy to shrink 3% this year in the steepest downturn since the Great Depression of the 1930s”.  The market is unperturbed - you have to make the distinction between predictions or events which include the unexpected, things that are new information and can move markets, and “past post” observations. The IMF are telling us nothing new, they are merely having a stab at quantifying what we already knew. The global economy is going to take a hit. No need to react. Behind every headline is something or nothing new that will move or not move prices. Distinguish. Think about the other side of a headline – Everyone wants to attract attention and clicks and headlines are crucial. But its a very useful trick to imagine the other ways you could write it. For instance - "50% of people are X", could also be written "50% of people are not X". The IMF headline is “Global economy in 2020 on track for sharpest downturn since 1930s -IMF”. What the headline doesn’t say is that they are predicting a 5.8% rebound in 2021. The media could have written the headline “Global Economy to rebound 5.8% in 2021”. Be careful of the media bias to fear. Fear creates more clicks. Open-minded about the market’s next turn – We have not taken a view at any point. We decided in March that the tide turned against us (we sold) and then it turned up (we bought). We are open-minded about the market tipping over again and will resort to making strong asset allocation decisions again if it does, but for the moment we are pretty relaxed, the trend is up and whilst it is we are running with this rally. If it starts to turn over on new inputs we will do something about it again – we are not a bull simply because we are fully invested. We are investors and observers. Not bulls or bears. We are simply comfortable to run with the market at the moment. Stock selection – rotating out of slow moving quality - As I have been writing for the last few days, we have moved from focussing on asset allocation to stock selection. We scan our stocks every morning and are very happy with the unfolding trend in many of them (ALL, APT, BHP, CPU, CSL, JBH, MFG, MQG, NAN, QAN, RHC, RIO, STO, TWE, VOC, WES, WOR, WPL, XRO) and are now beginning to rotate some of the stocks we initially bought in our growth portfolio, stocks that are OK, quality stocks, but proving sluggish (WOW, COL, DMP, SHL, TLS) or stocks that are showing mild signs of topping after a strong run (ASX, RMD, SPK) for stocks that will have more leverage to a market recovery.

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