NEW YORK (TheStreet) -- It seems to be fashionable these days for investors to say "I am sitting in cash right now." It is almost like a badge of honor. Such investors look a little big foolish on the big up days in the market, but feel vindicated on the days that the market is down.
Unfortunately, many have missed the doubling of the market since 2009 and, more recently, the 35% run-up from October of last year, until April of this year. As I watch the market on a daily basis, I see many of my biggest positions continuing to hit new highs. Additionally, I see fresh, new breakouts on very high-quality stocks. Yet, I hear it all of the time: "I am sitting in cash!"
This thinking makes little sense to me. Oh, I know there is a big fat Greek vote coming up this weekend. I too, have been watching the latest jobs reports on our domestic economy. Yes, I see the rising bond yields in Spain, and the plunging Euro. I know all about the sell-off in oil caused by our rising dollar. Let's not forget that China is slowing down and the fact that the emerging markets are submerging.
The indices are barely in the green for the year and money continues to gush into the bond market and the U.S. dollar. This is where the smart money is going, right? Heck, bonds have got to be a great deal here. They are offering 1.6% per year for the next 10 years. Of course, if interest rates start to tick higher, that return will be wiped out real fast.
I was asked by Pimm Foxx on
radio the other day, "why not sell everything and buy gold?" I replied that gold does not do very well when the dollar is rising like it is now. In addition to this, gold has been going sideways since last summer. In the meantime, lots of other things are screaming higher. Why have my money sitting in gold while I am missing these opportunities?
Yes, I know all about the doomsday prophets. I hear them all of the time. The dollar is going to crash and inflation will skyrocket! That warning may indeed came come true at some point down the road, if we don't reverse the course we are on.
That investment scenario has not been very profitable over the last year, however. Gold, measured by the
SPDR Gold Shares
, is only up 6.3% over the last 12 months while the dollar, measured by the
PowerShares U.S. Dollar Bullish Fund
, has been going up ever since Quantitative Easing began.
In the meantime,
is up 69.8% over the last 12 months.
is up 70.8%.
is up 108%. Don't forget
, it is up 69.4%. Even a boring stock like
is up 32.5% over the last year. You can Google my name and read the articles that I have written about these powerhouse stocks.
I have not been sitting in cash
. I have been invested in stocks like these instead.
I treat a portfolio like a 25-man roster in baseball. If I am an aggressive investor, I want to own the 25 best positions that I can find at the current time. I don't care if they are dollar stores, pawnshops, inverse funds, Treasuries, biotechs or whatever.
These positions have to possess two things: They have to be top performers and they have to also make sense from a valuation point of view. I have stated many times that I am neither a value investor, nor a momentum investor -- I am both.
If I am putting together a conservative portfolio for one of my clients, then I want to own the very best conservative stocks at any given point in time. Here is a hint: Rarely are such stocks widely held stocks of yesteryear like
Johnson & Johnson
, blah, blah blah! These are not the best stocks now. Maybe at one time they were, but not anymore. I
in a recent article that I wrote for
Yet, when portfolios transfer to me from the wire house firms, this is basically all I see. Where are the stocks of today in these portfolios?
Give me an example of a stock of today you say. OK, I will give you a few. Let's begin with an aggressive one first.
Dollar Tree has been very good to me. It is now up 161% since I added it to the
Aggressive Model Portfolio
. By the way, that portfolio is currently 9% ahead of the
year to date.
Dollar Tree has possessed those all-important attributes of performance and value for quite some time now. I will continue to own it as long as it maintains these characteristics and the chart holds together. This has enabled me to rack up a big gain in this stock so far. Yes, all good things must eventually come to an end, that is why a sell-discipline is also important. I will save that or another article, however.Let's take a quick peek at Dollar Tree's performance:
Data from Best Stocks Now App
As you can see, the stock has clobbered the market during every time period that I measure. When I compare the stock's performance against 2,788 other stocks, it gets a grade of "A." Also note that the stock was up a whopping 60.8% in 2008!
Let's next take a look at the current valuation on the stock:
Valuation June 14, 2012
Data from Best Stocks Now App
Despite the huge run that the stock has had it is still trading at a PEG ratio of just 1.05. In addition to this, when I take the current earnings estimates and extrapolate them out at a 17.7% per clip over the next five year I get a pretty heavy number. Furthermore, when I apply a reasonable multiple, I can still justify a lot of upside potential in this stock.
When I compare the current performance and value attributes of Dollar Tree against all of the other potential holdings in my database it come in at No. 4 overall. I only buy stocks that are somewhere in my top 200 or better, Dollar Tree been there for almost two years now. That has made my daily buy, sell or hold decision very easy to make.
Data from Best Stocks Now App
Growing the Investment
The position still needs to be managed carefully on a daily basis however. Also, I never like to make any one position more than 4% or 5% of my overall portfolio. The trick is to find 24 more positions like this and manage them carefully each and every day. Now that you know what I require in a stock, here are a few charts of other stocks like Dollar Tree that currently meet my criteria:
, "the growth stock of the decade" in an
back in January of this year.
Now, from time to time, trades have to be made to your roster. Washed-up veterans need to be upgraded, and fledgling startups have to be sent back to the minors.
What are you currently holding in your portfolio? I know --
you are sitting in cash!
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
At the time of publication, the author was long ROST, DLTR, MNST, TJX, AZO and FDO.