April

I did nothing this month. I’m still all cash (3-month treasury bills), and the stock market is hitting all-time highs. The S&P 500 has gained about 50% from its bull market peak in December 2021, when it traded around 24x earnings.

It has doubled its October 2022 bottom (3,577) when the earnings yield was about 5% and the ten-year treasury bond yielded 4%. Today, the S&P yields 3.2%, which is well under its all-time median of 6.6% and the current ten-year treasury bond yield of 4.4%.

In my view, these numbers show the stock market went from somewhat overvalued to dangerously so. Of course, I could be wrong, but I would much rather face the consequences that come from a fear of losing money than of missing out.

Despite my pessimistic outlook on stocks, I will not short them. Borrowing shares, selling them, paying interest on those shares, and hoping to buy them back as soon as possible at a lower price is a speculative transaction. Here, one is betting on near-term price fluctuations, not totally different from buying cryptocurrencies, commodities, metals, art, etc.

I can’t say with any confidence what the price of an index or individual security will be in the near term. I only aim to invest in stocks with a wide margin of safety. When I think the market is overvalued, however, I will allocate a portion of the portfolio (or all of it) to treasury bills and forgo buying stocks I think are cheap.