It's Tough, but Stick With Quality

We've got the Replacements out there right now!

That's right, we are now picking stocks to replace perfectly good ones that we sold because we thought they were done rising, or because we feared that they would be vulnerable to the FBFH -- the Fed Bolt From Hell -- which is the new term I am inaugurating to describe the moment when central-bank chief Ben Bernanke goes from bond-buyer to bond-seller.

The FBFH is so widely anticipated that, this morning, I heard someone predict it would transpire by Memorial Day -- that you know the best stocks are being sold lest they be struck by Bernanke lightning.

This article originally appeared on March, 15, 2013 on RealMoney. To read more content like this + see inside Jim Cramer's $3 Million portfolio for FREE Click Here NOW.

For example, we trimmed some retailers from the Action Alerts PLUS portfolio in part because of the anticipated FBFH. But now what are you supposed to do? Are you supposed to replace Costco ( COST) with Big Lots ( BIG) because one's up and one's a lagged? Is this the chance to replace 52-week-high achiever Macy's ( M) with cellar-dweller J.C. Penney ( JCP) (JCP), especially after my friend Scott Wapner at CNBC broke that story about the troubling aspects of Penney's balance sheet?

Do you replace, say, Cummins ( CMI), because it has moved up so much, with a stock like Emerson ( EMR), which has moved up less but isn't as good?

You sold Accenture ( ACN), thinking it has to come in because of Europe or the FBFH, and it doesn't. Do you now say something like this? "You know what? I will go buy Hewlett-Packard (HPQ) because maybe its consulting business is coming back." Is that prudent?

You sell a high-quality semiconductor-equipment company, but tech has lagged and now it is coming on strong. It is time to buy some Applied Materials ( AMAT), which isn't as good but at least hasn't moved as much? Do you really risk trading down in quality just because you need to replace a stock to gain exposure, particularly to what may turn out to be a less vulnerable area of the index?

The replacement factor is figuring huge here, because without a pullback, the cash is just killing managers. If you take your cash position up, say, to 10%, the stocks you do own have to do an awful lot of heavy lifting in order to stay pace with the S&P 500. Forget beating it; that's almost impossible.

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