Investment game

It is hard to read the stock market these days, or maybe it was ever difficult to do so.

Australia is famous for its two speed economy, referring to the disconnect between the booming mining sectors and rest of the economy (somewhat sluggish).

Well.

It is what the current investment market feels like.

On one hand, the fundmental of the global economy is still weak and there exists many threats to the slightly improved economic condition (I have reservation over this).

On the other hand, the stock market is rally like everything is looking rosy from this point now. The following quote from the Economist sums it up quite well.

FDR let gold rise from $20.67 to $35 an ounce in 1933-34, a dollar devaluation of 41%. Since Ben Bernanke took office, gold has risen from $566.15 to $1381.72, a dollar depreciation of 59%. Not many central bank governors in history have "achieved" so much.

When central bank runs its printing press 24/7, it will bring inflation in real asset reflected in rising food prices and price of commodities etc.

When central bank keeps the short rate so low that it won't compensate for inflation, it encourages/forces speculation and risk participation (i.e. distored asset prices and ill-efficient capital allocations).

I understand the disconnect between the stock market and the economy at least in the short run. However, these two will come to senses on day.

But the level of bullishness in the market is making long-term value investor very uncomfortable.

Is this bubble or not?

To me, there is no point to discuss this because bubble or not, the fact is the stock market keeps soldiering on leaving the economy far behind.

Even if there is a bubble, it can go on for a lot longer than one can remain solvent.

It feels like going to a party without watches or clock or any time reference. Everyone enjoys it until they drop. While everyone understands there will come a time when party ends, no one cares about it too much so long as there is booz and fun.

At a time like this, it is more important than ever to remain discipline about investing and focus on the bigger picture.

As I said, market can remain irrational for a long period of time. It is important not to be tempted to join the party if you have already missed it by a long short. If you are having fun, don't forget to pause for a sec before you become too drunk (because it doesn't end well).

Anyhow, I am happy staying on the sideline and wait for the opportunity to emerge.