Yesterday Abby Joseph Cohen, the Goldman Sachs guru who is a veritable patron saint of this bull market, reduced the portion of her model portfolio marked for equities from 70 percent to 65 percent. What Cohen said was not that she saw a future full of bad news for the market; it was that everyone else sees the same future good news that she sees, which sounds like good news but is actually bad news, because it means the market is no longer undervalued. She has noted that there was no longer any reason to be overweighted in the tech sector because, while it was once undervalued, it isn’t anymore. So: Sell a bit.
Today, Templeton Fund emerging-markets guru Mark Mobius warned that Internet valuations may not hold and thus a crash in those stocks could be in the offing. Nasdaq subsequently fell about 190 points. What Mobius sees sounds like bad news, and in fact would be bad news. But if enough people agree with him, that would be good news under Cohen’s vision of the future: The market, particularly the tech sector, would be undervalued again, which would presumably mean there is once more a compelling reason to knock your equity exposure back up a few percentage points. And so: Buy a bit.
In summary then, too much good news is ultimately bad news, but bad news is potentially good news, as long as it’s wrong. Or as this philosophy is more concisely stated: Buy on the dips. This will remain good advice until the day when it turns out that that the bad news is not good news in disguise but actual bad news. When this happens, it will be difficult to spot, but there will be a guru to tell you all about it, after the fact, on CNBC.
