Friday, February 10, 2012

OK, now should I be worried?

With headlines like these I have to wonder if the new year's rally in equity markets has created a feeling of too much optimism among investors?

Now while I have tremendous respect for Warren Buffett and Larry Fink as extremely successful investors (nothwithstanding Mr Buffert's misguided statements on taxes), I really do start getting a little bit concerned when too many people start talking up the attractions of investing in equities and the media start giving the bulls more coverage than the bears.

Taking the articles referred to in context, it is relatively easy to take the view that equities offer better value than bonds at present with the important caveats that an investor must have a sufficiently long time horizon and be able to live with the volatility. That said, I am not a fan of making all of nothing bets on one asset class, prefering to benefit from the benefits of a little diversification (risk reduction and reblancing). This becomes particularly important once I leave the work force and lose the security of a monthly paycheque. Looking at the Berkshire balance sheet (about half in bonds and cash), it would appear that Mr Buffett is not a fan of betting the farm on one asset class either.

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