Today, we saw the scrum continue… Unlike some past events, this is actually understandable without advanced market knowledge.
As we’ve talked about, oil-producing nations are in a budget hole. Some (Saudi Arabia), have reserves to ride this out, others less so. Such sovereign reserves are generally kept in sovereign wealth funds managed according to an investment policy.
When governments need to come up with cash, they need to sell investments. What does this mean? For example, last week we saw the Saudi sovereign wealth fund drop $70 billion to the US market. Our market is very liquid, but that level of liquidation causes movement.
This illustrates why we own titans, and why we often recommend against index-based investing. Indexing is cheap, no doubt, but gives us little flexibility to prepare for events like this. This is why our index portfolios are holding cash, and our equity income portfolios are holding inexpensive aircraft carriers.