Many academics will call this sort of approach “market timing,” which is fine by me. The fact is, if everyone is following the same model and studying the same courses from the same book, they’re doomed to fail. Failure doesn’t necessarily mean loss on an absolute-return basis. Rather, it equates to capital invested in a risky asset class without proper compensation.


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The Problem is the “E”

Again, I’ll assume I’m wrong - just as I do when I wake up every morning. To be sure, waking up assuming you’ll be wrong is tough on one’s ego, but so be it - so long as it’s the best course of action for those whose assets are entrusted to you.

Given the unprecedented credit unwind, unprecedented debt levels, global central-bank intervention (even as I write this, the G-20 is intervening - a fruitless operation, I believe), anyone who offers a “good” estimate of EPS will be taking a stab in the dark.

The sad truth is that the “E” in “P/E” is impossible to grasp in this unprecedented unwind. Stocks may look cheap 5 or 10 years from now. I hate to say that I don’t know if they will on an absolute basis, but on a risk-weighted return versus risk-less assets basis, my hunch is that it won’t have been worth the risk over the next several years.

As always, there will be pockets of opportunity, pockets that we will look to exploit.

Traditional, “long-only equity investing,” over the next few years, is, in my view, living on hope and a prayer.