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The aversion to cash in this business breaks my heart. Sometimes cash is such a perfect investment that it drives me crazy how few people ever recommend it. Nah, they hate the market so they are only 95% long instead of 100%. Or, they think the market stinks, so they decide to short a few highfliers against their longs.
No, No, No!You don't like any sectors? Sell everything and go into cash, don't short Advanced Micro Devices (AMD - Get Report) vs. Intel (INTC - Get Report) or Nortel (NT) vs. Lucent (LU). You don't think the market's going to do anything? Don't try paired trades, like General Motors (GM - Get Report) vs. Ford (F), and don't buy defensive stocks like Anheuser-Busch (BUD) or General Mills (GIS). Just get out. So many people never want to get out and go to cash, which is literally short-term Treasuries of the less-than-a-year variety. People start talking about how little cash earns -- although it sure earned more than a year ago. Or they say, "Can't be in cash, that's for losers." But I say:
Cash is for winners.A lot of this cash aversion stems from something that occurred a decade ago, when (FMAGX) Fidelity Magellan underperformed because it had too much cash. As a result of the weak performance, the manager was fired! But no one ever seems to get fired for bad stock-picking. The takeaway in this game ever since that high-profile firing was: Don't dare get caught with too much cash. That's why you see and hear all of these fund managers who have lukewarm views walking around with massively long-biased portfolios. I grew up in a different time. I only shorted when I had an edge -- I can't short at all right now by contract, but back when I could, I didn't short just for the sake of having some shorts on against longs. I don't care about not having enough exposure; I care about losing money! If I were you and I didn't like the market or didn't have anything that compelling to buy -- as defined by a willingness to buy it down if the stock keeps going lower -- I would go with cash. It's never wrong when you don't like the tape or when you can't find anything that truly makes sense for you.
|1.||Pigs Get Slaughtered||2.||It's OK to Pay the Taxes|
|3.||Don't Buy All at Once||4.||Buy Damaged Stocks|
|5.||Diversify to Control Risk||6.||Do Your Homework|
|7.||Don't Panic||8.||Buy Best-of-Breed|
|9.||Defend Some Stocks||10.||Don't Bet on Bad Stocks|
|11.||Own Fewer Names||12.||Cash Is for Winners|
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