Why a Good Chunk of My Portfolio Is Staying in Short-Term Treasuries
Here's my strategy as the "sword of Damocles" hangs over the market.
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"When forced to choose, I will not trade even a night's sleep for the chance of extra profits."
-Warren Buffett
Well, it appears the "sword of Damocles" will be hanging over the market and investors in the form of a very real possibility that the conflict between Israel and Iran develops into a wider regional war over the next week or two. All one can do as an investor is to hope for the best but be prepared for the worse.
The market has been remarkably resilient since its deep plunge in early April. There has been little progress overall around trade negotiations, but the equity market appears to be giving the administration the benefit of the doubt right now. Tariffs also haven’t pushed the inflation rate up yet, but that could very well change in the months ahead. The Federal Reserve is in wait-and-see mode on that front. Tariff impacts on overall corporate profits are another unknown and could start to affect many corporate bottom lines soon. Residential housing appears to be weakening at an accelerating rate as Wolf Street yet again pointed out this week.
The federal budget for 2026 could very well become a battle royale, given the thin margins in congress and this process could well drag out into late summer. In ordinary times, this would be generating more headlines and concerns, but these are not normal times. And, of course, the massive U.S. federal debt continues to grow at an alarming rate. Markets have been able to overcome all of these worries over the past two months. However, if war in the Middle East closes the straits of Hormuz and pushes oil over $100 a barrel, that will likely be a bridge too far for equities to overcome.
This is why I continue to advocate for conservative portfolio allocations with stocks deep in overbought territory using many traditional valuation metrics like the price-to-sales ratio. Stocks seem to have little to no risk premium priced into them. Approximately a quarter of my personal portfolio remains in short-term treasuries which continue to yield north of 4%. This ensures I have plenty of dry powder to deploy should equities finally yield to rationality.
I have few feelings of FOMO right now. First, because it seems obvious at current trading levels, the downside risk for equities far outweighs the probability the market moves much higher from here. In addition, almost all the rest of my portfolio remains in equities. However, almost all of it is held within covered-call holdings around the few stocks I am finding in this market that still sport reasonable valuations. This strategy provides some solid downside risk mitigation. It also should outperform overall market returns if stocks decline, trade flat, or rise modestly through year end. And the latter is the best-case scenario I can envision, although I would love to be proved wrong.
At the time of publication, Jensen had no positions in any securities mentioned.
