Count (but don’t count on) Your Blessings

October 10, 2012

Complacency is a real risk. However, it is a risk we can control by our own actions. Count
your blessings, but remain vigilant. If particular investments have appreciated so much that
they’ve become too large a proportion of your portfolio, trim them.
-Aaron S. Gurwitz, chief investment officer, Barclays

When I'm worried and I can’t sleep
I count my blessings instead of sheep,
And I fall asleep counting my blessings.
–Irving Berlin

The first two lines of these lyrics describe my feelings about investments right now. The
last line is a warning.

I’m worried. The condition of the global economy remains fragile, and the sustainability
of the post-2009 recovery depends, more than usual and too much for comfort, upon
the good intentions and skills of politicians. And the list of worries is a bit longer now
than it was earlier this summer, the new item being the droughts in the US corn and
soybean belt and the Black Sea “breadbasket” region. The long list of worries would not
cause me insomnia if it made sense just to reduce portfolio risk substantially across the
board and nod off knowing that, at least, I wouldn’t be any poorer when I awakened. But
risk assets are too cheap for that to make sense in my view and if I did cut risk sharply,
I’d probably lie awake worrying about potential missed opportunities.

I count nine blessings. Year-to-date returns are positive on all nine of our strategic
asset classes and some have done very well indeed (see table). Some of this positive
performance represents a continuing recovery from the sharp August 2011 sell-off,
which turned out to have been an over-reaction to some temporarily weak US economic
statistics. But after the experiences of the last few years and in the context of a growing
list of serious risks, a low-volatility uptrend in stock and high-yield bond prices counts
very much as a blessing. So one cure for sleeplessness may be to keep a copy of one’s
last account statement bedside, especially the page which compares this and the
previous months’ portfolio values.

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