'Yield curve inversions have a perfect track record of always bringing economic recessions. And yet a lot of economists are thinking that it is different this time. This complacency comes about via a poor general understanding about how inversions work.'
It is IMO tough making a quid on this market, because
1. The risk:reward for equities is extremely poor now with equity risk premium barely anything, which means return on investing in equity does not give any buffer over a risk free cash deposit rate to account for higher risk and volatility.
2. The US market is now at dangerous height, once this current Melt-Up ends, we could be in for a sharp correction. Even if a correction does not happen, stock valuations are overstretched which means limited upside
3. ASX market participants are largely in resource stocks which have underperformed compared against market indices. Favourite sectors like gold and lithium have I believe cause investors/traders to lose more money than make money, because this market has a habit of blindsiding us
4. In current market environment, quality stocks are subject to guidance risk i.e if they under-deliver relative to guidance, they could be subjected to a brutal markdown in the order of 20%, while micro caps and smaller cap stocks are subject to discounted capital raising risk, which could see huge mark down in stocks
5. When you have a market where a rising tide does not lift all boats, and in fact when you have a bifurcated market, you are almost always going to have a 'win some lose more' in a diversified porfolio, which could end with a zero sum game. And even if you are ahead now, continued holding may just erode holding/paper gains once the overdue correction arrives.
6. There is no consistent delivery in stock performance over time. We now have a situation where the stock you buy today could perform well for 2 weeks prompting you to put on an 'investing cap' on only to discover by the end of the month, the stock loses ground quickly and all of a sudden you are underwater because you held on. Stocks and the general market is subject to a constant state of flux and uncertainty that there is no consistency in direction. This makes the market no more than a stock trading environment, less one to invest with confidence. The only consistency to date has been in the larger blue chip stocks and selected tech stocks but that concentration has led to overvaluation in those stocks that investing for further length of time may result in suboptimal return outcomes ahead.
