Cash is a Position

In a recent blog post (July 26, 2011), I mentioned that I moved to a 100% cash position. I received many emails asking me why I sell my stocks and get out of the market. Here are my reasons:

1) I am a trader, not an investor. The market is healthy 2 to 3 times a year. When I feel we’re in an uptrend, I trade fundamentally sound companies that are showing strong technical qualities. When I see warnings signs, I get out!

2) One of the main reasons I stay out during corrective markets is that 4 out 5 stocks move in the general direction of the market. In other words, if we are in a downtrend, I don’t care how good the company is because most stocks will get hit.

3) I’ve studied some of the best traders who ever lived, such as Jesse Livermore and Gerald Loeb. They believe that you should only play the market when probabilities are in your favor, and that the LESS you are in the market, the better.

4) According to Harvard Business Review, since 1886, the US economy has been in a recession or depression 61% of the time. I realize that the stock market does not equal the economy, but they are somewhat related.

5) In my opinion, 90% of what we’re taught about the stock market is flat out wrong: dollar-cost averaging, buy and hold, buy cheap stocks, always be in the market. The last point has certainly been proven wrong because we have seen two declines of over -50%…during the past decade! Keep in mind, it takes a +100% gain to recover a -50% decline.

Don’t get me wrong, I want the market to be healthy. I simply respect and understand that it’s not always going to go up. When it declines hard, as it has the past two weeks, my goal is to avoid losses and to protect confidence. As I said in the beginning, I am a trader and this strategy is not for everyone. It’s a full time job to analyze the markets and to try and figure out when an uptrend/downtrend may be coming. If you are a long-term investor and don’t have the time to devote to research, I suggest you rethink it and make the time. It’s your money after all, and if you’re not going to care for it, who will?


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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.


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