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From Seeking Alpha Alarm bells ring over small caps "We are getting increasingly concerned about the extended nature of small-caps," writes MKM's Jonathan Krinsky, noting the Russell 2000 as of last week closed 42% above its 200-day moving average, the most in four years. A check of the records over the last 30 years when the Russell's been more than 40% above its 200-day finds forward returns 90 days out to be negative 94% of the time, with an average decline of 7%.He notes biotech makes up about 5% of the Russell 2000 and that sector's rally seems particularly unsustainable.Small-cap ETFs: IWM, IJS, TZA, TNA, UWM, VB, IJR, SLY, EES, RWJ, VBR, VBK, URTY, SCHA, TWM, IWO, IWN, IJT, RWM, SRTY, DWAS, SAA, JKL, VTWO, SLYG, RZV, SLYV, SDD, VIOO, JKJ, RZG, RSCO, SBB, VTWG, UKK, FYX, TILT, VIOG, XSLV, FNDA, VIOV, SKK, FYT, EWRS, JKK, PXSV, VTWV, UVT, TWOK, SMLV, SJH, FYC, IESM, VLU, PXSC, PXSG http://blogs.barrons.com/stockstowatchtoday/2014/03/10/small-caps-dangerous-things-come-in-small-packages/?mod=BOL_hp_blog_stw
Klarman raises alarm over asset prices, cites tech “nosebleed valuations” Mar 10 2014, 18:55 ET http://seekingalpha.com/news/1618413-klarman-raises-alarm-over-asset-prices-cites-tech-nosebleed-valuations Seth Klarman is warning of an impending asset price bubble, calling out "nosebleed valuations” in high-flying stocks such as Netflix (NFLX) and Tesla (TSLA) and warning of the potential for a brutal correction across financial markets.“Any year in which the S&P 500 jumps 32% and the Nasdaq 40% while corporate earnings barely increase should be a cause for concern, not for further exuberance," the Baupost Group head wrote in a letter to clients. Excerpted from Baupost Group's Seth Klarman letter,from Zero Hedge http://www.zerohedge.com/news/2014-03-08/seth-klarman-born-bulls-bitcoin-truman-show-market From the Seeking Alpha Klarman post; But....In a semi-rebuttal, Vanguard's Jack Bogle agrees stocks are in "risky territory" but says investors shouldn't be trying to time the market in any case, and the problem with selling stocks based on such a prediction is you won't know when to re-enter: "Will [Klarman] call you and tell you when it's time to get back in?"
Bogle knows. I reduced my small-cap after the New Year, anyhow. I wanted the yearly pay-out. But then I rebalanced. I took a chunk of profit and stowed it in my Large-cap fund. Even my new, reduced balance (since New Year, '14) small-cap fund is still up for me by 4.2%, ytd in 2014.
Klarman and Bogle are talking in different contexts.
Klarman doesn't use a fully diversified index portfolio for his investment decisions and needs to be aware of the market conditions.
Bogle is talking in the context of a fully diversified indexed portfolio where it doesn't make sense to time the markets to vary your balanced allocation plan unless you are an active investor with a plan and know what you are doing.
Both have valid points depending on your portfolio. I suspect very few people have the extremes represented by the two and fall somewhere in between with fund selection or allocation decisions that may not always be well balanced in their allocation.
In such portfolios, it would be wise to look at your allocation when such warning bells are sounded to make sure you are within your risk allocation limits as some asset classes may have grown more than others. This is the good kind of market timing that helps more than it hurts. Even Bogle admits that some selling during the dot com bubble may have been the right thing to do.
Comments
Alarm bells ring over small caps
"We are getting increasingly concerned about the extended nature of small-caps," writes MKM's Jonathan Krinsky, noting the Russell 2000 as of last week closed 42% above its 200-day moving average, the most in four years. A check of the records over the last 30 years when the Russell's been more than 40% above its 200-day finds forward returns 90 days out to be negative 94% of the time, with an average decline of 7%.He notes biotech makes up about 5% of the Russell 2000 and that sector's rally seems particularly unsustainable.Small-cap ETFs: IWM, IJS, TZA, TNA, UWM, VB, IJR, SLY, EES, RWJ, VBR, VBK, URTY, SCHA, TWM, IWO, IWN, IJT, RWM, SRTY, DWAS, SAA, JKL, VTWO, SLYG, RZV, SLYV, SDD, VIOO, JKJ, RZG, RSCO, SBB, VTWG, UKK, FYX, TILT, VIOG, XSLV, FNDA, VIOV, SKK, FYT, EWRS, JKK, PXSV, VTWV, UVT, TWOK, SMLV, SJH, FYC, IESM, VLU, PXSC, PXSG
http://blogs.barrons.com/stockstowatchtoday/2014/03/10/small-caps-dangerous-things-come-in-small-packages/?mod=BOL_hp_blog_stw
Klarman raises alarm over asset prices, cites tech “nosebleed valuations”
Mar 10 2014, 18:55 ET http://seekingalpha.com/news/1618413-klarman-raises-alarm-over-asset-prices-cites-tech-nosebleed-valuations
Seth Klarman is warning of an impending asset price bubble, calling out "nosebleed valuations” in high-flying stocks such as Netflix (NFLX) and Tesla (TSLA) and warning of the potential for a brutal correction across financial markets.“Any year in which the S&P 500 jumps 32% and the Nasdaq 40% while corporate earnings barely increase should be a cause for concern, not for further exuberance," the Baupost Group head wrote in a letter to clients.
Excerpted from Baupost Group's Seth Klarman letter,from Zero Hedge
http://www.zerohedge.com/news/2014-03-08/seth-klarman-born-bulls-bitcoin-truman-show-market
From the Seeking Alpha Klarman post;
But....In a semi-rebuttal, Vanguard's Jack Bogle agrees stocks are in "risky territory" but says investors shouldn't be trying to time the market in any case, and the problem with selling stocks based on such a prediction is you won't know when to re-enter: "Will [Klarman] call you and tell you when it's time to get back in?"
Klarman doesn't use a fully diversified index portfolio for his investment decisions and needs to be aware of the market conditions.
Bogle is talking in the context of a fully diversified indexed portfolio where it doesn't make sense to time the markets to vary your balanced allocation plan unless you are an active investor with a plan and know what you are doing.
Both have valid points depending on your portfolio. I suspect very few people have the extremes represented by the two and fall somewhere in between with fund selection or allocation decisions that may not always be well balanced in their allocation.
In such portfolios, it would be wise to look at your allocation when such warning bells are sounded to make sure you are within your risk allocation limits as some asset classes may have grown more than others. This is the good kind of market timing that helps more than it hurts. Even Bogle admits that some selling during the dot com bubble may have been the right thing to do.