Today (Friday) grouse shooting starts and the FTSE 100 index has risen above 6900. It is up 14% this year. It’s nice to feel a bit less poor but is this a bubble that will burst when Brexit bites?
It’s an old aphorism that markets are driven by fear and greed. Albert Einstein was an early adopter: “Three great forces rule the world: stupidity, fear and greed.” Warren Buffett often says more or less the same. So is it greedy to remain fully invested at these apparently high valuations? I do not have the faintest idea but I do have two observations. First the FTSE at 6900 today is not so high compared to March 2015 when it was a bit above 7000. Since then it has fallen below 5500 and almost made a complete recovery.
Secondly, I believe it is crucial to remain fully invested if you are a long-term investor. Taking profits may trigger Capital Gains for one thing. However, tax considerations should never be your primary consideration. Buy low, sell high requires a sense of timing that I don’t possess.
I let McInroy & Wood switch between equities and bonds for me in their two main funds. They have been overly pessimistic about equities this year, moving 40% into bonds. My guess is that they will maintain that weighting until the Brexit smoke clears and growth prospects internationally improve. M&W do not invest for the short-term or to make a quick turn. They aim to preserve capital by sticking to a conservative investment model, which suits me.
My other investments are all in equities and I seldom make any adjustments to my portfolio. Two investment trusts that I bought this year (Brunner and Monks) have underperformed because their discount to Net Asset Value has widened; Brunner is at a discount of 17% and Monks 11%. I sold Man Group, BP and a couple of small holdings to tidy up.