The Ominous Signs from Liquidity and Valuations

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The bull market surge in 2020 and 2021, followed by the bear market swoon, are great reminders that liquidity and valuations are critical to managing wealth effectively. Unfortunately, most investors pay too much attention to one or the other, but not both.

Those assessing liquidity conditions and tracking valuations were prepared for the bullish stampede of 2021 and understood the risks that ensued when easy monetary and fiscal policy tides ebbed. Others were left in the bull's dust or are being ravaged by the bear.

I share my views on portfolio management to better appreciate the value of liquidity and valuations. Further, I highlight my recent portfolio management activity to show how I navigated through the changing liquidity situation this year.

My perspective on valuations and liquidity

Valuations help investors gauge the downside risk and upside potential in a stock or market. At the same time, assessing liquidity conditions, including technical analysis, defining short term trends help with investment timing and asset selection.