Good morning,

I hope you're all well rested.

There was an interesting discussion in the comments last week about general conditions in the market, and particularly small cap valuations.

I'm certainly not in a position to give financial advice to anyone through this blog, but I'd hope that most readers can afford not to worry too much about general valuation levels (which I acknowledge are currently much higher than average).

That's because I think excellent returns are reserved for those people who can afford to hold the best stocks for the longest periods of time, riding out corrections and bear markets and re-investing dividends along the way. There may be a few who can time the market well, but I think the simplest way to succeed is just to buy and hold good stocks for as long as possible (it's worth reading 100 Baggers by Christopher Mayer on this point!)

That doesn't mean ignoring valuation completely. Of course you never want to dramatically overpay for your stocks. But if you're not leveraged and you have a long time horizon, and you took care not to pay too much at entry, then doing nothing nearly all of the time after that sounds like a great strategy to me.

Remember that most of the financial services you use rely on the fees generated by activity, those fees being deducted directly from the value of your portfolio.

And when you're not invested, you don't get to receive the dividends and the internally-generated compound returns which are the basis of financial wealth-building.

In practice, most investors are not good at market-timing.

So it's better just to sit back and let the companies you've invested in do the work, in my book.

Rather than selling anything in fear of an approaching bear market, I'd be more inclined to passively allow the cash position in my portfolio to build up over time, if I can't find any individual stocks I want to buy. So my strategy is to (hopefully) buy more when the markets are cheap, not to sell when the markets are expensive.

But of course the strategy which suits your personal situation may differ. If you're leveraged or if your time horizon is shorter, then you probably have to act differently.

For what it's worth, a poll I conducted on twitter recently saw the majority of respondents…

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