As the Dow Jones Industrial Average fell 300 points on Monday, after Caterpillar Inc. (CAT - Get Report) lagged and Nvidia Corp. slashed its revenue forecast for the fourth quarter, investors need to think about reducing volatility, said Kevin O'Leary star of ABC's Shark Tank and Chair of O'Shares ETFs.
"When you get misses, even with big names like Caterpillar, you are going to pay 6-10% - institutional investors don't like that - they are trying to weed out that volatility," O'Leary said in an interview.
Caterpillar shares fell 9.7 percent after the industrial giant posted weaker-than-expected earnings for the fourth quarter.
Nvidia, meanwhile, dropped 14.4 percent after slashing its fourth-quarter revenue guidance to $2.2 billion from $2.7 billion
"My new theme for 2019-2020 is balance sheet, it doesn't matter which sector you are talking about, you want the best balance sheet in each sector," O'Leary said, adding that it is more relevant now than the last three years.
"This year owning the boring Pfizers and all that stuff with great balance sheets is where you can hide in the weeds and maybe make 5-6 percent," he explained. "There is a lot of garbage in the S&P right now in terms of low quality balance sheets."
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This article is commentary by an independent contributor. At the time of publication, the author held TK positions in the stocks mentioned.