An Opportunity Is Coming

By | May 26, 2020

Here is a post I wrote on Facebook on March 23:

If you didn’t sell stock after the market started to go down, you didn’t lose money. If you sell now, you’ve lost a lot.

It is nearly impossible to time the market, so don’t. About the only thing you can do now is to find some bargains to buy if you have cash to do so. Will you make any money?… yes but only under two conditions:

1. You pick good companies
2. You can wait it out, at least a few years

I also think it is important to limit yourself to no more than 10-15 different investment choices (10 is probably better). If you can do the research, individual stocks are just fine. If not, maybe a good S&P index fund is a good choice.

Hang in there!

Obviously I was wrong about taking a few years because the market is almost back to normal. In fact, I am up for the year. Which is what concerns me.

So right now I am less invested than I would be normally. I sold off some excess purchases and have about 30% in cash in my brokerage accounts. I would always move to cash if I think the market is overbought. I would not move everything to cash, because I could be wrong and the market could continue to ascend.

Cash is not used to reduce volatility, which it does do, but to give us the opportunity to buy if the market takes a deep dive. I think it very well could and I am not the only one who thinks this way.

In normal circumstance, I would suggest holding about 10% cash. Now is not normal at all. We have Covid-19 (the novel coronavirus) which will continue to affect business results for some time. Unemployment is looking like around 20%, which we have never seen in our lifetimes. We have decent companies like Hertz declaring bankruptcy and the travel industry waiting for the end. It is not normal times.

Cash is often referred to as dry powder because we want it available when we can buy cheap. By the way, I try to get myself excited to buy on a downturn and scare myself when I think the market is overbought. The opposite of what most people do. It’s not easy.

I hope you had a good Memorial Day weekend!

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