After a decade of asset price inflation, I’m tempted to shuffle the deck. I remind myself:
- Each time I change, I crystalize tax liabilities, pay transaction fees and introduce the possibility for error.
- A key benefits of an attractive position is the freedom NOT to change it.
- NOT following through on a mediocre idea => can be a great decision.
- My greatest investing weakness is the desire for change, for change’s sake.
Against the above, I’ve developed a hunch that assets are going to be cheaper 2 to 3 years from now.
Fully invested, with yields at historic lows, there’s little reason to rush into changing strategy.
Costly mistakes happen when we overpay late in an expansionary cycle.
Where are we?
Start with yourself => write out your ten largest items for the last year.
- Ski Season Accommodation
- College and Retirement Accounts
- Disney Cruise
- Ski Passes & Gear
- Harry Potter World
How does your current rate of spending compare to 2009/2010? I’m double my bear market rate. Sitting at a 2007/2008 rate of spending (with 3 more dependents).
Are you considering any big-ticket items?
- Vacation property
- Trading up my home
- New vehicle
There is information in what you are willing to consider. #1 and #2 are rarely on my radar.
What’s happening locally?
We are doing well in Boulder County, 2% unemployment, significant investment in schools, parks, and recreation facilities.
Some things stand out at the margin,
- multi-million dollar homes being left empty by seasonal residents
- houses being purchased for ~$1.25 million then torn down
- properties selling for double 2007/8 valuations
- local governments seeking to borrow HUGE and take technology risk on utilities / broadband
There are many people choosing risks they do not need to take.
There are many people sharing stories about quick money being made.
Risk being ignored across all levels of society.
State => We have an active State Assembly passing laws and regulations as fast as the Governor can sign => at the margin… they are seeking the repeal of TABOR so they can spend money even faster.
Federal => in the news… medicare for all, national student loan forgiveness and a war of choice with Iran. No constraint on the ambitions of government.
Interest rates => at the top of the cycle, moving away from rate increases and a yield curve showing sub-2% money five years out.
VC to Public Markets => rapid internal dealing to ramp valuations prior to IPO => weak post IPO performance. The smart money is shifting risk, fast.
Every political viewpoint, local to global:
- acting as if capital is unlimited
- taking on risks of choice
- increasing debt burdens
- agreeing to future commitments of unknowable magnitude
These conditions are how bad ideas get funded.
- Asset prices at all-time highs => a price umbrella influencing EVERYTHING
- Cost of debt back at a generational low => easy money
If you are smart then the marginal idea that gets funded might be your own! Right now is THE time to raise money, sell businesses and unload illiquid positions.
If you are concentrated then consider taking money off the table (link is a blog of mine that’s worth your time).