I concluded yesterday's post with a joke about repeating that post today by replacing municipal bonds with European stocks . Well I guess it turns out not to be just a joke as things in Ireland appear to be deteriorating quickly creating a visible path for a bailout in Portugal with possibility of bailouts needed in Spain, Italy and even France (assumes several dominoes).
For more on this you can read Bruce Krasting and Credit Writedowns. Being informed is very important, I mentioned this the other day, but more so than being up on current events is being correctly positioned. Long time readers are probably bored with my repeated admonitions on avoiding big Western Europe but the region at best has been an underweight for years which has been my position and for now I see no path for changing.
To sort of repeat from past posts; Europe probably needs to take desperate measures to help some of its members. How much portfolio exposure do you want to a region that is on the verge of desperate steps? This also applies to the US.
Next I wanted to touch on client holding Caterpillar's (CAT) taking over Bucyrus (BUCY). CAT CEO Douglas Oberhelman was in several places talking about the desire to get more involved with mining equipment because of what they perceive as a longer term trend of increasing demand caused by the build up and out of infrastructure as more countries see a middle class of sorts ascend.
This is a theme I have been writing about for a long time and have been investing in for a long time as well. The point I have tried to convey with this theme is that it is going to play out, it already has been playing out, the money is going to be spent and many countries will see improved quality of life for many people with the proper context that the middle class in these places will not be the same as middle class in the US.
This creates a tailwind for any stocks involved which is a positive but it has to be understood that no stock theme will go straight up. CAT is doing this deal based on an expectation that will play out over many years. If over the next 12 months all equity markets are down then so too will CAT be down. Buying BUCY is an investment made with an eye to future, not the next quarter.
Lastly a reader at Seeking Alpha asked the following question;
I'd be interested in more of your thoughts on "time allocation" vs asset allocation
- do you think this type of self induced bias exists in investors? and shouldn't that be a factor in which vehicle they chose to use to invest?
how would you recommend a person allocate their time to be balancing the exploration of new ideas while capitalizing on areas of interest and knowledge?
The starting point has to be self awareness of limitations in terms of time and ability to understand the subject. This may be easier said than done but is crucial to enhancing long term success however you define it. Another building block here is the various fallacies and other behavioral issues that we all have. This is why in the past I have written about and tried expand on points made by Nassim Taleb. Dealing with our money is a deeply psychological thing as it hits many fears that people have. This has lead me to try to avoid situations where client fears could be heightened in such a way that would cause them to panic.
Obviously I think every aspect of investing and capital markets is fascinating, I love the work for the prospect of always learning new things, but not everyone feels that way. I have very few friends with any interest in capital markets let alone an all-encompassing vocation. I write often the narrowness of a portfolio being mostly about time available to spend. For many people inclination is a component of time available and the two would go a long way to determining a reasonable product mix. Maybe I am wrong but someone who is inclined to seek out stock market blog content probably has the inclination to build a portfolio with some narrow funds and a couple of individual stocks.
Whether that is correct or not the simple answer to this reader's line of questioning is introspection on many aspects of your makeup.