Email of the day on positioning and evidence of a mania:
Comment of the Day

January 27 2021

Commentary by Eoin Treacy

Email of the day on positioning and evidence of a mania:

I wanted to provide some input to the question you asked subscribers today on how we are invested and cash levels.

I am close to 70 years old and just retired. My investment portfolio is my pension which comprises stocks and property. For me, within my own fairly conservative criteria I am close to fully invested in the stock component of my pension. In the final 4 months of last year I invested additional cash in FTM themes such as  emerging markets, metals and mining and renewables. A large portion went to South East Asia where I have built some knowledge over the years and saw real value, often with good dividend yields. The remainder of my portfolio is in a portfolio of US stocks which I have managed for some years but the contents of which I rotate as trends change. A small percentage is in continental Europe plus UK Investment Trusts the latter following FTM themes. I have additional cash available which I might invest in stocks if the market declines providing a buying opportunity or I may invest in property if a suitable opportunity arises. But the cash will be invested either in stocks or property  within the coming year.

I also maintain a cash or cash equivalent position amounting to several years living and recreation costs which will never be invested in stocks. Maybe overly conservative but I’ve been investing from the mid 1980’s, when I first subscribed to FM, and this way I can sleep at night knowing I wont need to sell assets to fund living costs.  


I am usually about 20-25% in cash. Now about 50% and I almost feel like I should be 75-80% in cash.  Just don't see why the world is so much better now vs 1 year ago today pre-covid-other than low cost of money.  Seems like a lot of pent-up demand and fear not to get in has made the market frothy...kinda like the run on toilet paper......

Eoin Treacy's view

Thanks to a number of subscribers for responding. The responses so far tell me that while there is evidence of froth in the market, we are not at a point where there is a risk of an imminent end to the reflation. Many investors went 100% to cash in the summer and are still only beginning to get back into the market.

There is a massive disconnect between Wall Street and the real economy. That will close over time. After a crash, valuations always surge because earnings take a profound hit. As earnings recover valuations improve. The rotation out of the stay-at-home winners of 2020 and into small caps/cyclicals/commodities/real estate etc. (real world stocks) is a reflection of investors playing that theme.

This compendium of views from a number of sources, kindly forwarded by Iain Little may also be of interest. It clearly suggests the majority of banks believe we are still in the midst of economic reflation. I think there is solid evidence of froth in the market, particularly among retail favourites, but the wider recovery theme is still the base case. That suggests reversions towards the mean can be viewed as buying opportunities.

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