As mentioned in previous posts, I was and am of the opinion that the market, as a whole is over priced. In the last one to two months we have seen macroeconomic risks emerge, largely in the form of sovereign debt issues. These have shaken the foundations of the optimism in the market. And now the fear of another recession have taken hold of the market sentiment. This shouldn't come as a surprise to anyone. Balance sheet recessions (and this one is a major one) are followed by long feeble recovery. It is not uncommon for economies to dip bank into recession a few years later, only to emerge out of them very soon. The deleveraging process for economies is painful and long (on average 7 to 8 years long).
I must remind myself, as I see my equity portfolio shrink, that this market sell off is good! Even though the market as a whole is still overvalued, there are plenty of pockets of severe to moderate undervaluation. I can sleep well at night, knowing that about 60% of my portfolio is a collection of undervalued businesses [that happen to be getting cheaper every day]. And, the other 40% is cash.
I prefer to run a fairly concentrated portfolio, with 5-10 positions. I look forward to add more weight to my most undervalued positions and, depending on valuation, build new ones.
