Leading indicators of an economic contraction

Originally posted by madamswer ↑

"Its the short term, next year or so, that I am struggling to find reasons to be optimistic."

@vic_wattle ,

Almost at every point in time over the past three decades over which I have invested in publicly-listed companies, one would have been able to come up with lists of issues and challenges that would preclude optimism.

Yet, despite that, it has not prevented a great many companies from inexorably growing their revenues, profits, and dividends ... despite the various economic headwinds and/or financial crises".

Over the years, I have come across many investors who have "got out of the market" because they were worried about some or other thing(s), only to see the value of the shares they sold continuing higher for years that followed.

And, sure, the inevitable 15% to 20% "correction" that they were afraid of did eventuate down the track, but to a price level that was 30%, 40% (or even more) higher than the level at which they sold out.

A great precedent shows that the best defence when it comes to preserving the value of one's capital is not to cease owning shares at various points in time; rather, it is to be a long-term shareholder in the right kinds of companies.

In other words, accurately timing entry into, and exit out of, the market is demonstrably nigh on impossible to do, while the opportunity cost of not being invested in good-quality businesses is observably high.

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@madamswer

Thank you for taking the time to contribute to the discussion here.

May I pose a few questions to you?

I take it from your comments you will not sell any of your equities or hold any cash/gold/bond (or similar defensive asset) in the event of the US short term credit cycle turning? So over the next 2 years you will hold zero cash and remain 100% invested come what may? Will you hold true to that all the way? All the way Adam?

Now, let me pose a further question to you. What if the market becomes euphoric from here. Will you still hold firm all the way, sell nothing, zero cash all the way? Holding firm in your belief that time in the market is all that counts?

What if you change your mind at some point and decide to a sell a percentage of your equities and hold a parcel of cash? Or if you allow your cash levels to build from dividends or from recent buyouts such as Dulux, Trademe, etc. May I politely and respectfully suggest, that if that were to eventuate, it could be argued that you would not be holding true to the principles you have presented in your comments and may be a somewhat hypocritical position.

The point I am trying to respectfully make is this. I believe it is all relative.

Each individual investor will make their own assessment and determine the level of risk they are willing to take on.

Couple of quotes from Howard Marks others may wish to ponder and consider:
"In my opinion, there are two key concepts that investors must master: value and cycles."
"What the wise man does in the beginning, the fool does in the end"

Ps: for anyone interested, Howard is referring to the short term and long term credit cycles in his quote.