This week I’d like to coddiwomple through making mistakes and staying data-dependent to gain a...
Raise Some Cash for a Sunny Day
05/18/2010 4:03 pm EST
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 their prices 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. And 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? And when do I want to buy?
I’m not going to reverse any of my recent buying decisions. I think adding US 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 (Nasdaq: CSCO), Cummins (NYSE: CMI), and Microsoft (Nasdaq: 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 and 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 and I’ll take my losses there. And 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. (For more on where the bottom might be for the euro, see this recent post.)
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. (For more on timing Brazil, see this post.)
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.Full disclosure: I own shares of Cisco Systems, Cummins, and Microsoft in my personal portfolio.
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