Investors raise cash for all kinds of reasons.
In anticipation of some big personal expenditure. To protect a portfolio against risk in a volatile market.
To have the firepower to take advantage of a future buying opportunity.
That last reason is why I’ve decided to raise some cash over the next few weeks and perhaps longer.
At some point the bear market in Chinese stocks will drive prices of Chinese stocks so low that I will want to buy. At some point the repeated interest rate increases in Brazil and India will drive prices so low in those markets that I will want to buy. At some point the fear of a slowdown in global growth will drive prices of commodity stocks so low that I will want to buy shares in that sector.
And I’ll want to have some cash on hand to take advantage of what are shaping up as really juicy buying opportunities.
Which, of course, leaves me with just two tiny questions to answer: What do I want to sell to raise cash? When do I want to buy?
I’m not going to reverse any of my recent buying decisions. I think adding U.S. stocks to gain exposure to what is likely to be the world’s best performing stock market (perhaps not a very tough bar to beat, I admit) over the next six months is still a good move. Especially if you concentrate on stocks such as Cisco Systems (CSCO), Cummins (CMI), and Microsoft (MSFT) where the company’s sales and earnings will get a boost from customers who have put off buying and are now resuming purchasing to catch up with deferred demand and changes in technology.
So I’m going to sort through Jubak’s Picks looking for safe stocks that have hit their target price because investors are looking for safe havens—I’ll take my profits there. I’m going to look for commodity plays that are likely to be dead money for the next six months or more—I’ll take my losses there. I’m going to look for growth stories that haven’t played out—and take my modest profits or losses there.
I’m not going to do any panic selling. Remember this isn’t selling to protect a portfolio from some kind of crash—I don’t see that as likely in any of the world’s markets. Instead I’m trying to move money from slow or no gain stocks to the sidelines so that I can redeploy it later in the year.
When? Not yet, that’s for sure.
The several crises that are driving stocks lower in many of the world’s markets haven’t yet run their course. The euro and the Euro Zone are still in for more pain, for example.
The trends toward higher interest rates and other inflation-fighting, anti-speculation measures that are pushing down prices in Brazil, China, and India still have months to go before they’ve played out.
But investors should be able to see when those crises and those trends are nearing an end. The euro will be nearer to $1.10. Brazil’s central bank will have raised rates three times instead of just once. China will have recorded a quarter of worryingly low GDP growth—you know, worryingly low like just 8%.
I don’t think I’ll be able to call the bottom, but with the trends that far advanced I’ll be willing to bet that the bottom is near and I’ll start putting some of my cash to work.
In the meantime the job is to execute the best “sells” possible, sit on the cash, and make lists of stocks that you want to buy when the time looks right.
marsdon1201 brought up a terrific suggestion that I would like to second…an update on the dividend portfolio if possible please…thanks for ALL you do Jim! 🙂
jbellen:
BHP (50% in Austrialia) may be substantially effected by the new mining tax . I don’t think I am interest any more unless otherwise happens. They can try to defeat the proposal or be creative. So far, too soon to tell.
Will you be giving a heads up when you think it is time to buy commodities? Like BHP,VALE,RTP, Etc.
Jim,
Wouldn’t this also be a good time to sort through the Dividend Income Port. to review the picks and see if any changes or future changes make sense. Like your idea of having cash for the future for growth, international stocks. But will the world situation now and in the near future, 2011 have an impact on your Div. Inc. Port.? Thanks.
Tom:
You are right that market like today’s is not a good time to “raise cash”. Take Jim’s post as advice and make your own decision. I have never danced on the exactly same drum as Jim’s. Jim’s recommendations are by large on fundamentals, but I may buy or sell based on market conditions. That’s why I have been selling on every bump including holdings that Jim had not recommended to sell. Because I had good gains on those stocks, so I decided to take the money and run. I also sold my poor performers When I had chance to break-even, even though Jim had not recommended to sell. I also bought some on dips, though I wish I had waited for 2 weeks or I wish Jim had shared his thought (like this post) earlier. This post provided extremely important guidelines and I am sure you got it too.
I have been following Jim for sometime and I benefited from his recommendations most of time. Like all other investors including the greatest one Warren Buffet, Jim had his flops too. That’s when you need to decide what and when to do about it. In my case, I took my own actions before Jim issued buy or sell.
BTW, I do have many losers too, but most of them were not recommended by Jim. All my so-called “safe” stocks (telecom, utility, drug, etc.) are in negative! All my risky stocks did OK or not too bad.
kudos to jim for the rebuttal. i understood it your position from your posts. hopefully tom does now too.
Tom, just to be clear here I was also sellling n April and May–6 stocks by my count. I’ve been taking profits and selling stuff that didn’t work in order to reposition the portfolio. You can find the most recent sell here https://jubakpicks.com/jubak-picks-sells/ From that perspective I’ve been selling more than buying over April and May. If I raise cash now by selling off some non-U.S. growth positions, I thnk the resulting portfolio will overweight the U.S. market–which is the best of the global markets at this point and I guess you could call that my long play–and I’ll be underweight falling/correcting markerts and I’ll have cash on hand. That’s the strategy as this “prophet” sees it.
djpoints, how is raising cash for poor performing stocks that aren’t working now any different than any other time in the market? Buy recommendations were coming out left and right, and all of a sudden b/c the market is falling off it’s time to raise cash? Time to raise cash was having the foresight to sell into market strength. It’s talking out both sides of your mouth. Not trying to make fun of your “prophet” here, but I call it like I see it.
Muchas gracias Ed. I suppose that the euro isn’t going to make a surprise spectacular recovery. Parity with the $ will be a nice gain, even at this starting point. Enjoying your insights by the way, along with those of the other regular posters.
hasel,
Based on what you know now, how high do you think the euro can go? $1.25? $1.30? More?
The euro short play is, at this time, an inverse bullish play. In other words, you are looking more at how much you want in profits from it, rather than preventing losses. Until there is a realistic plan to fix the EU’s economy, the euro is going down.
Personally, I am looking to sell EUO when the euro gets close to parity with the dollar.
What would be considered, at this point, an appropriate trailing stop percentage for EUO or DRR? Anyone? Seems like it getting a little blip downwards today.
georic,
To me, pessimism is just a different kind of opportunity. 😉
t1151jf – “better than Buffet” tongue-in-cheek, surely. Folks, this is nothing more than a continuation of a much-needed correction. S&P looks to 1085 if/when we break 1120, then to 1040 then to 980; below that look out!
Yes, the US economy is growing, BUT all those forward projections, based on growth globally, will now have to be re-pegged downward for 2011 and forward. Thus, US valuations seemed, and indeed were, too high.
UPSIDE – BYDDF looks like a good spec play, my buy is at $6.81, should be coming soon.
davcbr,
Believe me, I’ve probably read a few of the very same things you’ve referred to. That is why I try to look at all sides of the “bull vs. bear” discussion, including views outside of it.
For example, last year I was a gold “bull”, because of inflationary concerns. With all the government spending, it was logical. But as I’ve looked more and more at the commodities, the prices haven’t been inflationary. Just the opposite.
The more I research it, the more I see our economy is a lot closer to “Great Depression” than any recession I’ve ever seen.
EdMcGon, you seem to be in a pessimistic mood, not true to character. You could certainly find other reasons to feel that way: growing unemployment everywhere, majority of politicians who foster their own good and have no inkling what common good means, Afghanistan, Thailand etc.
And still, I have a feeling that this crisis will force politicians to make decisions they would never have made otherwise, like a European financial governance: a blessing in disguise?
Coast Guard: Key West tar balls not from BP spill :
http://www.marketwatch.com/story/coast-guard-key-west-tar-balls-not-from-bp-spill-2010-05-19-852510
Interesting… so where are they from?
Sold my BP yesterday and related. “BP PLC Chief Executive Tony Hayward is seeking to reassure staff that the U.K. oil giant has enough cash to cope with the costs of the recent slick in the Gulf of Mexico, and has become a safer place to work.” I’m skeptical, they may have cash, but dividend could get cut IMO.
Should have read “I have seen at least three times “
A couple of observations.
Over the past few years, I have seen at least times someone pointing out that recent market moves look like what 1929 [ or 2000 ] did before their crashes. I also remember at least one of those times the market did move down about 10 – 12%. To me, the increased volitility does mean something, and one thing to consider is that with everybody on board for a major move down, it could just as easily move up.
I do believe it IS going to go down and agree with JJ that it will just be a normal move down; a “correction” in pundit parlance. If you do not play both sides of the fence, you cannot win at this work. Notice I did not say “game”
‘Don’t let a crisis go waste’! Do you, guys, know how to let electors and democratic representative groups swallow a bitter medicine? Do you know how the democratic elected representative (put here any Country) will be able to communicate this and ‘solve’ these problems in very high international meetings? Yeah, right I am rhetoric: a big crisis. We are experiencing a paradigm social, economical and financial change. Who will understand this better will have a big reward.
yx,
When I said “scary” I was referring to the charts in Run26.2’s link.
To everyone,
One thing that bothered me about that Thursday crash a few weeks ago was that it exposed how fragile our stock market is at this point. If a fluke can send stock prices tumbling like a house of cards, how solid ARE the underlying fundamentals holding up stock prices?
When I saw the charts on Run26.2’s link, it crystallized for me. I knew this current market was like a deja vu for me, but I couldn’t quite place it. Now I can. We’ve played this game before. It’s called “the last gasp of the bulls”. We played it in 1929, and again in 1987.
The charts by themselves don’t prove anything, and I will gladly agree to that. But taken in economic context, they say plenty. Factors to consider:
1. Mutual funds have been running low on cash. This is undoubtedly related to people pulling out of the market after the last crash.
2. We are in a deflationary period (note the PPI released yesterday). Just look at what commodity prices have been doing lately. Contrary to what the gold bugs/inflationists would tell you, the deflationary trends are so bad there is no way for the central banks to print enough money to take care of the deflation, short of charging negative interest rates (i.e. paying interest for banks to borrow money). The deflation is directly related to an imbalance in the relationship of industrial capacity (too much) to consumer demand (not enough) in the world.
3. Uncertainty. Europe seems to have center stage at the moment, although China and Iran are lurking in the background. The collapse of the EU is not beyond the realm of possibility. We have no clue what will happen in China’s economy, although we expect something bad. As for Iran, with their cute little agreement to ship uranium to Turkey, and considering China and Russia won’t agree to any kind of tough sanctions, what do you think Israel is thinking right now? Add in weapons shipments from Iran to Syria and Lebanon, and the potential for a full scale Mideast war becomes frighteningly apparent.
4. Looming tax increases. We know the dividends are about to face a tax hike. We know about the end of the Bush tax cuts (or shall we call it what it is: an income tax increase). We know the U.S. government is talking about adding a VAT. That doesn’t even consider the local tax hikes occurring all over the country. Sucking more money out of an already tentative economy has a very 1937 feel to it. (For those of you not familiar, in 1937, FDR tried to deal with his budget deficit by raising taxes, and managed to kill an already weak economy.)
5. Even Jim has said this: Companies will have a tough time beating their earnings later this year. Remember, their numbers improved as 2009 progressed, and the economy started to show signs of life. Keep this in mind when you see glowing earnings reports from the 1st quarter of 2010. “Past results are no guaranty of future earnings.” If we are in a deflationary period, that will put pressure on prices, which will in turn cause profits to drop. We may even see another round of layoffs before the end of the year. Potentially higher unemployment on the horizon?
There are other factors too, but those are the main ones. Now put those charts in this context and tell me: You really think a crash won’t happen?
(Continue) However, I think the potential “crash” may happens if investors realized just how BIG our debt is and how screwed we are.