i read this on quora this morning....not sure if you fellas agree or not but i copy and paste the question and answer here: Wall Street does not make any fees on investors who hold cash, so maybe they have another reason they are so adamant that you remain invested all the time. Ever hear the term “rising tide lifts all boats”….. Well eventually the “tide recedes” and when the risks begin to outweigh the potential for reward, you need to raise CASH. Here are 8 secrets that you will never hear on Wall Street and major keys to have long term success in the market: 1) We are not investors, we are speculators. We are buying pieces of paper at one price with an endeavor to eventually sell them at a higher price. This is speculation at its purest form. Therefore, when risk outweigh the possibilities, I raise cash. 2) 80% of stocks move in the direction of the market. In other words, if the market is moving in a downtrend, it doesn’t matter how good the company is as most likely it will decline with the overall market. 3) The best traders understand the value of cash. From Jesse Livermore to Gerald Loeb they all believed one thing – “Buy low and Sell High.” If you “Sell High” then you have raised cash. 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 highly correlated. 4) Roughly 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 as we have seen two declines of over -50%…just in the last 18-years. Keep in mind, it takes a +100% gain to recover a -50% decline. 5) 80% of individual traders lose money over ANY 10-year period. Why? Investor psychology, emotional biases, lack of capital, etc. 6) Raising cash is often a better hedge than shorting. While shorting the market, or a position, to hedge risk in a portfolio is reasonable, it also simply transfers the “risk of being wrong” from one side of the ledge to the other. Cash protects capital. Period. When a new trend, either bullish or bearish, is evident then appropriate investments can be made. In a “bull trend” you should only be neutral or long and in a “bear trend” only neutral or short. When the trend is not evident – cash is the best solution. 7) You can’t “buy low” if you don’t have anything to “buy with.” While the media chastises individuals for holding cash, it should be somewhat evident that by not “selling rich” you do not have the capital with which to “buy cheap.” 8) Cash protects against forced liquidations. One of the biggest problems for Americans currently, according to repeated surveys, is a lack of cash to meet emergencies. Having a cash cushion allows for working with life’s nasty little curves it throws at us from time to time without being forced to liquidate investments at the most inopportune times. Layoffs, employment changes, etc. which are economically driven tend to occur with downturns which coincide with market losses. Having cash allows you to weather the storms.
Reads like it was taken from a "Trading for Dummies" book or something similar. Nothing new there, nothing shocking or agreeable. Vinny, go grab a nice slice. You need some good pizza it seems.
Cash would have been my friend at end of January for my investments, because investing IS NOT SPECULATING. Investing is a very long-term trend following system. But had I sold my investments at that peak I would have been trading, not investing. The dividends and long-term capital gains make it worthwhile. No, my assets invested are invested. The cash I have, I use for trading, because it is not "investment." A trend not being evident is bad for my swing trading futures, which is a speculation. But my trading is not about long-term investing and gaining dividends and capital gains through the long-term. It is about short-term capital gains made through the act of trading. I have cash sitting in the broker account that is not trading. It is also not invested. If that cash were "invested", it would be down a lot because everything is down from beginning of February. But since it is not invested, and not trading, it is flat. So on the investing front, that cash is "king". On the trading front, that cash is a drag, because it is lost income opportunity for me by not trading it, EVEN THOUGH A TREND IS NOT EVIDENT. But that just comes down to me not being a good trader. A good trader does not need a long-term trend to make money, IMHO. Cash is best when you are like me, unsure of what to do. Better to sit on the sidelines with cash than to risk it when you cannot figure out how to trade a market that has neither a trend nor tight wedge. For the past 11 weeks or so, this equity market has given no signal on which way it is going, but that is the lazy "trend-style" trader I have become. I have lost my way on how to be a profitable "trader", in the truest-sense. I blame Frump and my nagging need to want to know fundamentals, my analytical brain. I hate TA, lol! I hope I am making sense here.
In a bull market everyone believes in buy and hold, and in a bear or sideway market everyone says cash is king. The problem is only if one can correctly predict the next bull or bear market. So the quote means nothing and helps no one, except maybe true dummies. An example is the subprime mortgage crisis, which became so obvious afterwards. But only Paulson and a few more correctly predicted it and made a fortune, while most others were either oblivious or dragged down by it.
I will never forget watching Bill Griffith on CNBC in the early 90's espousing caution against investing any money you may need in the next five years. Long before they sold out to the skimmers and asset gatherers.
I’m 90% cash in my trading account right now. And I have moved all my 401k money from mutual fund into a money market account. Lets check back in 6 month if I’m the next paulson...