“The most important thing to do is to stick with the processes that have served you well, but appreciate that the environment we are operating in may be altering. If in doubt, as I wrote last week, inaction and hence holding cash may well be the safest bet.”

Read more by James Montier in Mind Matters.

Comment

Montier is talking about 20%-40% cash.

He also recommends purchasing value stocks with good dividend yields, rather than growth stocks, since he thinks valuations of US stocks – while off from their bubble peaks – are still far too optimistic.

As the piece indicates, Montier is no fan of the “decoupling” thesis – the idea that global growth can continue despite a recession in the US. He asks how it is that the same people who once talked most enthusiastically about globalisation are now endorsing decoupling – just as enthusiastically. He calls it cognitive dissonance.
He has a point.

On the other hand, I happen to be a fan of cognitive dissonance. Mainly because our cognitions aren’t as pure and simple as we think they are. They are just points of view.

To assert both globalisation and decoupling at the same time strikes me as quite plausible. Certain aspects of trade are global. Others are not. Some countries depend more heavily on the US consumer – either directly or indirectly. Others do not. It makes perfect sense that US stocks should be overvalued and not likely to go anywhere for years……and that emerging markets stocks, even if relatively overvalued and due for a correction, should do better – even much better – over the long-term.

But the piece is still worth studying for those investors in whom hope for their favorite growth stock springs eternal….