@vic_wattle,
An interesting discussion, and one which I've held over many years with many people of different investing persuasions.
Responses to your questions follow:
"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?"
The only times I wilfully sell stocks I own are when:
1. I realise that I have made a fundamental analytical error (in evaluating the business model, management competence/honesty or the industry structure),
2. there is a major and unanticipated change in the investment thesis (e.g., a new industry entrant, a radical change of strategy, legislative change),
3. the stock(s) in question are clearly over-valued, in my assessment, or
4. where a portfolio position is unambiguously too large in the context of residual potential investment return.
(This last category of selling is something that I try to avoid doing and so very rarely do: only occurs when I think that the degree of overvaluation is extreme. )
But then I will recycle that capital into other stocks which I find to be undervalued.
What I certainly won't do is sell any of the stocks I own purely because of some change in macroeconomic factors (real or perceived by me), such as a "turning in the US short term credit cycle".
In my experience, at any given time there are always some stocks that are under-valued... very often there are stocks within my own portfolio that I consider to be under-valued and I am able to add to those holdings; other times it takes a bit of leg work to find and research new opportunities.
Some times there are fewer undervalued stocks overall (like now) than at other times, but I have never once over the past 20 or 25 years not been able to find at least a few stocks that I was able to buy based on my investment process.
"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?"
Yes. I will always hold the very minimum amount of cash that is practically possible for my circumstances.
What I mean by "practically possible" is that, due to tax obligations and also the way my affairs are structured, I will always need to make some modest liquidity provision for trust distributions (quarterly) and for PAYG tax instalments to which my investment entities are subject. This is a purely administrative requirement to hold cash and the amount involved varies between 5% and 8% of my total invest-able capital.
But beyond that, I will almost never hold more than that and if I do, it will only be for relatively short periods of time (for example, after receipts of relatively large lumps of cash proceeds from, say, takeovers or participation in selective buybacks, which might take me a month or two to re-deploy).
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.
Cash does not generate real rates of investment return, so it is an asset to which I always seek to keep my exposure to an absolute minimum. Which is why I won't somehow "change my mind and decide to sell a percentage of my equities and hold a parcel of cash."
In reference to buyouts, yes, that can pose a short-term challenge when it comes to re-allocating capital.
And, as it happens, there have been a number of companies I have owned, and currently own, that have been subject to takeover in the past 12 months: last year it was TME (as you mentioned), HSO and ZNT, as well as DLX and LGD this year.
The proceeds from the sale of my TME, HSO and ZNT shares were invested mostly in stocks I already own, such as APA, ASX, CBA, RHC, TCL, and small caps SDI, KME, SDF, and initiated new positions in AMC, BLD and VEA.
And despite markets appearing generally expensive (as the running commentary from the talking heads on television have been saying for some time), I have already identified 3 or 4 suitable investment candidates [*] for allocation of anticipated proceeds from DLX and LGD takeovers in coming weeks.
In closing, I fully appreciate that my investment process and philosophy results of me being fully invested during times of major economic and capital market downturns, such as the 1997/8 Asian financial crisis, the 2000/1 DotCom collapse, the 2002/3 global economic recession, the GFC of 2008/9, the Greek debt crisis 2011, the unravelling of the commodity boom in 2014/15, Brexit fears of 2016, the bond sell off of late 2018.
But I am quite happy with that position because, as we know with the benefits of hindsight, not only was it almost impossible to predict when all of these "crises" would occur, but they were all quite short-lived in the context of investing time frames, and - most importantly - their permanent impact on the underlying financial performance of the sorts of high-quality companies, that I try to own ,was negligible.
[*] One of them, in which I am a long-term shareholder, just announced downgraded full-year profit expectations, as it happens: AUB
