Cassius King wrote:
mellon wrote:
I assume, anticipating a drop of 60% coming soon, no matter what your risk tolerance or time horizon is, you would not advocate any allocation in stock right now. Wouldn't it make sense to wait for it to bottom out and then get in.
That’s what he said.
“One of the questions we often hear is, “If you had to choose stocks or bonds for a T-year investment horizon, and you couldn’t change your position, which would you choose?” Presumably, the requirement that you can’t change your position implicitly says that the question is about expected return, not potential volatility.
Historically speaking, the answer has generally been “stocks,” particularly when T is greater than 3-5 years. But once valuations move into the top 20%, the answer generally favors bonds, especially in periods where market internals have deteriorated. Moreover, if the yield-curve is rather flat (so you don’t earn much extra return for extending your maturity), cash actually becomes the preferred asset. If one allows for the possibility of changing the investment position in response to market fluctuations, cash becomes even more dominant. That’s because when valuations are high and market internals are unfavorable, the ability to respond to steep market declines by shifting from cash to stocks can be enormously useful.”
—John Hussman, September 2018 Market Commentary