The market continues to trade at a very high multiple, which means that we should expect the returns from the broad market indexes to be weaker than average over the next decade (probably averaging a few percent per year, versus the historic average of near 10%). That doesn’t mean the market is going to come crashing down anytime soon, though such things are inherently unpredictable, but it does mean that we should keep our future expectations in check.

Still, I have a hard time holding as much cash as I probably should right here, given that expectation and my age (I’ll be finishing my 54th year in a few weeks, so it really matters to me what the market does over the next 10-20 years)… and that difficulty comes not just from the fact that a rich valuation is a poor timing signal for when things will change (we could have said roughly the same thing about sub-par 10-year expected returns in 2019, 2021 and 2022), but also from the fact that I keep finding companies that strike me as reasonable (or in some cases downright attractive) investments, stocks that are either at trough valuations for steady “survivor” companies, or that are priced at a discount to what I see as their very likely growth (the recent extremes for that might be Diageo (DEO) on the “survivor at trough valuation” side, or Celsius (CELH) at “not priced for the growth they should have” side).   I don’t really want to buy “the market” here… but there are plenty of stocks that I do want to buy.

So I’m hedging against the market, to some degree, by keeping a big chunk of the fund/ETF part of my portfolio in cash-like positions (a decade ago, most of that would have been in stock funds, broadly approximating the market’s return), but the fact that the market will probably have poor average returns from this level doesn’t mean that’s how the future will unfold — this is all about probabilities and expectations, there are very few certainties when it comes to either investing or predicting future events.

And I went a step further, and added some extreme call option positions to my hedging portfolio this week — objectively, I should tell you that doing this is not generally a great idea, active hedging is a long-term cost for a portfolio, and hard to justify ...