Squaring the Circle

It's hard to buy this market right now. We're up 40%+ from the lows, we haven't seen a decent retracement, and the outlook is muted (at best).

Conversely, it's hard to get too bearish. Downside looks like 10%-15% max, the bears are trapped and getting squeezed into the market (flow of funds), momentum and sentiment is positive, green shoots dominate mindspace, and there is plenty of govt "news" likely over the next 6 months.

The tough thing for me is reconciling a less than upbeat economic outlook with positive long term return expectations.

Getting the big trend right is the most critical thing. And it seems like the long term trend will be for a recovery in equities. I hate that because it doesn't necessarily square with my fundamental outlook (a likely cyclical lift no doubt, but significant secular headwinds). It translates into buying equities on hope. That has been the right strategy many times in the past, and is likely to be the right strategy in the future (not because I believe in the fundamental case for such, but because history has shown it is a fool who underestimates economic resilience).

The one thing that could really upset the "hope applecart" is if the market mirrors the Japanese experience (because we are snookered and have few options). And that is what keeps me up at night. The lessons from that experience are to be nimble, be prepared to buy and sell more often, don't get wedded to any stock(s), and be disciplined in trading a range - hardly a description of a long term investment strategy (or maybe it is).