Sam Lee wrote a very awesome piece last year titled “Waiting for the Market to Crash is a Terrible Strategy“. The basic gist of the post was that you shouldn’t wait around for market crashes trying to time when you will invest in the markets. That summary is a disservice to Sam’s thoughtful post so go give it a full read.

As the stock market booms and Donald Trump touts the market’s record highs every day there is a palpable feeling of missing out. Many people are now jumping in and waiting for a surge in stocks. In a recent note Jeremy Grantham discussed the prospects of a “melt-up”. This is something I’ve discussed ever since Trump was elected – he has all the right ingredients for creating a stock bubble:

Now, I hate to attribute too much of the stock market boom to politicians because the fact of the matter is that the market and the economy move mainly because regular people go to work every day and do amazing things. Politicians might influence the speeds and quality of the roads, but let’s not mistake them for the engines powering the progress of the vehicles on those roads. Still, someone like Trump is a bit like injecting nitrous oxide into the car and when you’ve already been moving along at a fast clip for 8 years, well, that looks like a pretty good recipe for a destabilizing boom in asset prices.

But here’s the kicker in all of this – THIS IS SHORT-TERM SPECULATION AND HAS NOTHING TO DO WITH A SOUND FINANCIAL PLAN.

Let’s try to bring things back to operational facts. Now, the operational fact of asset allocation is that the stock and bond markets are inherently long-term instruments. The bond market is about an 8 year instrument on average and the stock market is best thought of as having a duration of at least 25.¹ When we take our savings and allocate them into these instruments we are engaging in an inherently long-term endeavor. You can try to squeeze returns out of them by being super short-term, but in the aggregate they will generate whatever return they are designed to pay out.² That doesn’t mean we need to be irrationally long-term, however, we also shouldn’t be irrationally short-term. Planning for a “near-term melt-up” is an irrationally short-term expectation. And just like it’s silly to plan for a crash it’s equally silly to position your portfolio for a boom.