Risk Assets Market Cycle

From my last post, the other experts say that when you are young, you should take more risk, so let’s say if you are in your 20s, you should put in 80% in equities, but do you get a voice in your head that stock markets are too high at the moment, you should pare back that percentage? How about if you are in your 60s and your financial consultant tells you should put in a maximum of 20% in equities but this was 2009 and stocks had sold off 60% from the highs and you wonder whether you should listen to your financial consultant on this percentage.

If there are many ways to tell whether a stock is overvalued or undervalued, then you should be able to apply this to the whole market as well. Some common factors are looking at whether price/earnings or price/book value are too high relative to historical measures. One website I like to look at is www.gurufocus.com/buffett_assets_allocations. Php.

As of Dec 2018, Warren Buffet has only 57% exposure to equities. His exposure in cash is a high 36% and this has slowly risen in years when just in 2013, he only had 19% in cash. That means that he is finding lesser opportunities to deploy his cash. How much percentage do you have in cash?

At http://www.gurufocus.com/shiller-PE.php, you can see that the P/E ratio is high, but of course overbought can stay overbought but it does suggest, you want to be more conservative with your risk investments.

In https://www.gurufocus.com/global-market-valuation.php, we can see which markets look cheap worldwide and thus has a higher projected annualized return.

In developed markets space, Singapore and Australia look good while in emerging market space, China and Russia look good. Japan and USA are near the end. If you do look at the Singapore and China equity charts, you will also see that they have not yet reached their 2009 highs. Below chart is the China H shares chart. We are long way from the 2009 high, and plus if you believe in the hype that Asia is the future, then you might to consider allocating more cash to EM equities.

We know now the market moves in cycles from cheap to overbought, the question now is how put this quantitatively, like how much percentage to equities at a certain point of time. I will touch on this in my next post.