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Taking out the trash
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In times like this, with the market nervous and sentiment poor, cash is king. When I say that I do not mean you need to run and hide in cash when the "SKY IS FALLING". What I mean is that, if you have some cash to invest, it is the absolutely best time. So, if you are setting on some cash right now in your investment accounts, be doing your homework and looking over your "wish" or "watch" lists. Look to see if a stock you like is getting cheap enough to buy. I have been doing that and built up cash from gains in APPL, RIMM, and other high flyers to allow me to make my huge play in retail stocks. I have absolutely no intention of selling them even as they get downgraded every day. You see, I have done my homework and these stocks are priced for drops in yearly income of almost 20% or more. They have dropped like rocks and I will demonstrate in a later post why they have become extemely cheap on a valuation basis even if we assume a drop in income instead of further gains. Further, many have dropped to prices not seen since February of 2005. It took these stocks 2 1/2 years to get to the levels they were in June of 2007 and they have lost all of that in about 3 months. However, I need more cash to take advantage of the market downturn when things stabilize a bit. Therefore, I will be selling my dogs and plan to redeploy the cash into vastly better stocks. In fact, the irony of this is that I might even rebuild my positions in my winning stocks once the carnage seems over. That is why you need to take profits, as I said in an earlier post, when you have a great run up so that you don't need to ride the whole way back down. If the market gives you an opportunity, you might rebuy great stocks at a lower level. If they do not retreat, then you simply watch your partial position keep making you money. That is always the most fun. In this case, the market may put these stocks back on sale. We will see. Be back soon Doc | ||
