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This observation I believe to be so very important to all of us.

extract from model x portfolio report 11 February 2021, commenced 25 November 2020, +22% 

Good afternoon, we have remained largely out of the market for an extended period, after being whipped about a little during exaggerated volatility.

We have just sat on our hands really, as what is going on in markets generally, is perhaps even more extreme that the great Tulip Bulb disaster of the Netherlands a long time ago. What happened then, was that a whole society became obsessed with getting rich quickly and easily by speculating.

What occurred then, in this making of a disaster, was that quite simply the price had been going up so quickly, beyond anyone's expectations, that others had in fact become quite wealthy as a result. So, inevitably, gradually at first, and then with a rush, everyone else wanted in. 

Widespread participation of inexperienced investors and traders in a market where all reasonable standards of valuation have been forgotten. It was just too easySound familiar?

It went on until a single tulip bulb, perishable, was worth more than the average home. That is how crazy things can get.

Having 34 years economic and market experience around the world, and knowledge of events such as this, has actually been a significant handicap to performance over the past 12 months. It is one of the reasons many experienced fund managers missed out on one of the sharpest rallies we have ever seen. Of course, my error last year was to be focussed on Main Street economics and valuations. When, it would have clearly been better to have focussed on simply stimulus and low interest rates. 

It is also the case however, that in modern times anyway, we have not really witnessed this 'everyone swept up' in the idea of easy money. My personal view is that this is such a temptation to the human psychology for a variety of reasons, including the great support to the ego derived from making money in the market. It has a particular allure. We are all subject to this to some degree.

We have seen it in individual stock movements before, that became front page news on the way up, and again on the way down.

We have never seen it, in our time, across entire markets however, and seemingly occurring everywhere all at once. This has been new, and now we are left with just feeling our way as to how long it can last.

The most important point of all, is that the turn in the market will not be clearly telegraphed. It never is. I have certainly been too early in looking for the top. I do want to highlight, that it is important to be aware that what has been happening, will not be without a sudden end. These situations always end in tremendous losses for the great majority of participants.

When I first launched the new Model X Portfolio, it was to accept that we had to join the now well established upside trend, but with hedging signals always in place. There is no doubt that this commitment to buying, is the reason for strong performance so far. We have to do more of that, but the past two weeks have been too tricky to jump in again. A bit like jumping into a muddy river for a swim with no local knowledge. 

Things are currently calming down a little. We will respect price action with the above in mind. Always, with the awareness this simply cannot go on indefinitely. The post US stimulus period could be a market check. 

Clifford Bennett

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