My theme for the balance of this year is to err on the side of conservatism.
The market is extended and the divergences I have focused on since early August are growing more conspicuous.
The weakness in the eurozone is beginning to affect European aggregate economic growth, and if this weakness accelerates, watch for systemic risks in the European banking system (although I'm not sure we will see this happen over the balance of the year).
Maintain above-average cash reserves, be diversified across company and sector exposure, and avoid most overvalued social media stocks that have benefited from sponsorship by momentum-based investors.
I have learned that most strategists, money managers and talking heads on tv welcome the safe haven of the crowd. As long as prices rise, they remain bullish. But those same groups will "turn" on the markets and become defensive if prices continue to drop, leaving retail investors in the lurch (which the average retail investor is late to the party and last to leave).
As well, examine the reward vs. risk in your individual stock holdings, and if the ratio is unattractive (or neutral), peel some off and take gains.
My most-preferred asset class remains closed-end municipal bond funds and high income yielding stocks (such as Chimera, Vale and Potash to name a few). I have numerous new investment ideas that have been the outgrowth of my research over the last few months, but I will only discuss them upon a broader retreat in the markets (which I hope happens sooner rather than later, hence why we are sitting on elevated levels of cash, approx 40-50%).
Remember: Price is what you pay; value is what you get.
And patience is a virtue.
