I ask them why the almost 20% cash position, is there something they're seeing in the macro data or the headlines that their peers (who are much more heavily long) don't necessarily see?
No, they tell me, they don't play that game in terms of trying to read the macro tea leaves or anticipate the political outcomes in the 17-nation Euro Zone. Rather, they've got a 20% cash pile because as they've sold things, they've not been able to find replacement candidates worth buying given their bottom-up approach. It's a combination of stocks not being cheap enough around the world to offer the "margin of safety" they live by and earnings growth being non-existent across much of the global landscape.
One pocket of interesting buys is in European multi-nationals that do most of their business outside Europe. These stocks are being pressured because of the Euro exchanges they are listed on despite the fact that they don't have the perceived exposure to Euro economies that people assume.My personal cash position has been well above 20% for some time now since the focus of my portfolio is based on a 3-5 year time horizon. At each dip in the market, I’ve picked up a couple new stocks or added shares to positions, only to sell some of those positions as markets rallied back near current levels that remain uninspiring. Multiple expansion has been a primary driver of this year’s US market rally as corporate profits enter a recession. If this trend continues, as I expect, further multiple expansion seems unlikely and the potential for contraction remains well outside most investors’ radar.
Regarding the pocket of opportunities in Europe, I have also been watching several large multi-nationals come under intense selling pressure as specific country’s markets get sold. While I don’t expect sentiment to change in the near future, investors will likely be rewarded for their patience. Although the “world class value manager” remains a mystery, based on these anecdotes, I definitely wish I had more access to his investment outlook and fund.