Covestor

There is finally some justified fear and uncertainty being manifest in the market's behavior. I too think that we are probably in for another rough patch; a double dip in housing and the downside looks more probable than the upside in equities. However, I will say it till I die, we can't predict the short term fluctuations of the market (there are some who can guess very short term fluctuations with incredible accuracy but once they move beyond a few days the talent becomes luck). The market seems to be more or less fairly valued at current levels but with an aging population having to protect their downside and various semi-serious macro and political concerns it has the potential to take a big dive. My approach is like it has always been. I don't pay much attention to the macro predictions, especially leading indicators. I try not to devote more than a tiny amount of my thoughts to worrying about things I can't predict or control. If there were a true systemic risk realized, an event that brought total collapse of the financial system, then we would have much bigger things to worry about than our portfolios or our bank accounts. Given that, I prefer to be invested in good companies purchased at good prices in a diversified portfolio and maintain a time horizon of 5 years or more. If you are not prepared to handle a 50% drop without behaving irrationally you shouldn't be in stocks.

I am searching harder than ever and there may be some rebalancing of positions as I find a better use for the money. My strategy has historically held a combination of deep value and growth at a reasonable price stocks. I will be shifting the balance a little more in favor of the deep value as those positions offer a little more downside protection, in addition to there being more of them available as the market sinks. I have made the mistake, and unfortunately I might do it again one day, of being overly optimistic and purchasing when prices were a little too high. Buffett has said that he thinks the three most important words in investing are "margin of safety." Having said that, he bought conoco phillips at the height of oil prices and he has a black belt in this stuff. So I am in good company. Waiting for good prices, even if you miss some upside while sitting in cash, is the only way to truly be successful long term. Temperament is a little more important than intellect in this business.