Bloomberg- November 14, 2017
In his latest Bloomberg interview, Jim Lowell takes stock of the risks we face in today’s bull market.
What are the risks? Valuation is stretched in some measures, but in other ways it is not. And with the market continuing to trade on fundamentals (and ignoring headlines), the lack of volatility could be as concerning valuations in the S&P 500. This year, it’s been profitable to buy active management teams that have the skills to select reasonable prices within any given marketplace. And those skills will become more tested, and even more valuable, as the bull market gets more and more protracted.
With the NASDAQ up 25%, is diversification the right course of action? It is. Emerging markets have taken a measurable turn for the better, and investors who have had 15-20% invested abroad have benefited nicely compared to those investors who have concentrated their portfolios solely in U.S. equities. What’s more, the NASDAQ feels good when the bull market is running full steam ahead, but that index is the most volatile and most prone to significant fall backs.
Now is not the time to buy whole markets. Avoid index funds that don’t have refinement to them. This year has been a marketplace that rewards active managers who can avoid overvaluations. Next year will be more difficult than this year has proved itself to be. So a more globally diversified approach makes a lot of sense.