Investment psychology 101: Do something or do nothing?

TLDR: If you were selling at the bottom in April (a mistake), you have no reason to be buying now at all-time highs. 

Howard Marks truism:

1. There come times when the pendulum swings between bearishness and bullishness. In a sense, a measure of fear and greed.
2. There are limits to either side; being a rally or a crash will find its eventual top or bottom.
3. Market timing is hard. If not impossible. The worst of crashes came out of nowhere. The 1987 flash crash came out of the blue. 
4. All good investing is contrarian in nature.

Based on my observations, here are some notable ones:

1. On the key index: S&P 500 at all-time high, tends to make new highs. S&P 500 is at a stretched valuation which typically trades at 18.3x PE (last 10-year average) vs 22x (current), though somewhat more before dotcoms’ 28.3x. Buying at high valuations can lead to less unsatisfactory outcomes due to a smaller margin of safety. 
2. Liquidity keeps building: Considering the liquidity and dry powder on the sidelines (record amount of money in money markets worldwide), there is plenty of capital to buy the dip.
3. Real estate in some parts has recovered: REITs in the USA trade lower on an equity vs bond basis indicating a certain bullishness - retail REITs trade around low 4% vs their 10Y bond of 5.3%. Incredible! Can they be pricing that dividends grow faster than fixed income over the years? (Unusual but not impossible)
4. Falling rates is anti-gravity: Rates have been falling worldwide except in the USA. Many people have already priced in some of those cuts in the USA as an eventuality leading to higher equity markets. 
5. Froth is building: Crypto (ex BTC), meme stocks returning to market attention and causing surges is a concern. While it remains unclear when this story will end, margin and leverage in the system are sure signs of greed.
6. CNN fear and greed index at extreme greed.

What to do?

1. Adopt an increasingly defensive posture as the market rises. If April lows allowed you to go aggressive at 80-20, consider neutral at 65-35. Defensiveness can go up to 50-50 too. Justifiable considering bonds are relatively attractive on a historical basis.
2. GIC says it best. One needs to be disciplined on pricing because while long-termism could mean you eventually get it all back (if you never sell), there is opportunity cost with lost time. 2 lost decades for Japan’s Nikkei finally got it back recently. This is painful and so discipline in pricing entry is everything.
3. Diversification matters. Beyond US stocks, other markets could offer opportunities. Considering how HSI, STI and Nikkei hit recent year highs, or even all-time highs. There is an advantage to being a globally diversified investor.
4. Does selling everything make sense? No. Because market timing is a fools game. Unless your stocks are stratospherically high (case could be made to sell some). Berkshire sold some Costco before Charlie passed on, he commented it’s probably a mistake. The centurion was right! (As the stock went higher)

Prepare not predict.

1. Nobody knows when the next crisis or plunge will come. Building up warchest now matters.
2. Be selective on pricing and stock selection as we enter the later innings of the business cycle.
3. Likes: Spinoff (Qnity from DuPont expected in 2H25), temporarily challenged industries (luxury, healthcare), bond funds: PIMCO GIS income (offers >130bps pickup over treasury after fees) delivers 5.5-6% yield. Dislikes: T-bills and FDs and anything that loses to inflation (Consider inflation is 3%, the hurdle is high)