Monday, May 30, 2011

Cash and Cojones

Recently I've read a handful of articles that basically say the same thing in different ways: proceed with caution.  Or, to put it more colorfully, in early 2009 you only needed two things to make a killing: cash and the cojones to commit it.  Ironically, if you had those two things in 2005-2007 you probably got killed.  So what does the market feel like today?  Well, while we may not be quite at the excesses of 2005-07, we're definitely nowhere near the palpable fear of early 2009.

So the real question is what’s an investor to do?  Obviously I have no idea what the right answer is (remember, I'm just some guy with a blog), but I’ve been focused more and more on mitigating risk and less and less on reaching for returns.  This means keeping a high % of cash and only making new investments if I feel the downside is already baked into the stock price (CSCO, BAC, JOE).  Additionally, I’m thinking about trimming AHS as it’s been bouncing around its 52-week high.

So, while my conservative stance may come with opportunity costs in the form of missed returns, I’m sleeping well at night AND in the case of a market sell-off I’ll be able to swoop in and pick up some bargains.  Remember, even a cursory glance at history tells us market corrections tend to happen suddenly BUT with surprising regularity – real estate crash, tech crash, LTCM, savings-and-loan, 1987 crash, etc.

Finally, if you’ve got some spare time I highly recommend reading this memo by Howard Marks ( – it’s very readable and encapsulates my thoughts on the current market much better than I ever could.  And of course I always recommend reading the Hussman weekly commentary, the most recent of which is here (