Sunday, June 23, 2013

CASH is king, TINA and other four letter words

On the right side one of the consistently most popular posts is Cash is Trash (link) from January 29, 2012. Well today is the day for cash. Cash is king once again. After years of zero returns, zero looks pretty good when everything else is down. While U.S. stocks are still up for calendar 2013, gold, bonds, emerging market stocks are all down big time. 

I just posted the year to date in my monthly summary:

SPY +11.7 S&P 500
IWM +13.8 Russell 2000
TLT -10.5 U.S. 20-year bond
EEM -15.7 Emerging markets
GLD -22.8 gold
SLV -34.0 silver

There is no alternative TINA is a big theme. Some say they are buying U.S. stocks because there is no where else to turn. I heard similar arguments from gold bulls for years now, during its 12 year run of up moves. Many of those precious metals bulls are now cursing the markets.

Readers know that I prefer hedged and balanced approaches. I am not an all in or all out kind of person. I prefer low risk, low return strategies. The current market illustrates some of the difficulties for the aggressive approach. Some of the smartest people, the hedge fund managers, have been underperforming the U.S. stock indices by being too clever. Certainly, my hedging approach has also lagged. I prefer a smoother ride than is possible with all in, all out, bet the farm techniques. Of course, a hot hand can rack up huge returns by betting it all, but over time, almost all hot hands turn cold. 

Risk management in terms of position sizing, cutting losses, money management tend to be better long term indicators of financial well being than a person's short term trading record. Too many mistake a bull or bear market for financial acumen, when it may be just luck that had the person on the right side of the market. 

Buy the dips works great during bull markets. As gold and silver folks are learning (again), buy the dips is the road to the poor house during a major bear market. So many bought silver on the way down, at $35 then $30 then $28, then $25, and now it is to $20. If this is where most of their assets are deployed, the losses are horrendous. For those on margin, the losses are life changing. I am sure a good percentage of futures accounts for precious metals bulls have been liquidated due to margin calls. Those aggressive people won't report their losses on the Internet. The older folks in the group, may never return to any market, the experience so sour, the losses so devastating.

It is a difficult time in the markets. At least it is for me. The number one priority is to live to trade another day. Despite my vast experience (started in 1987), I continue to learn, continue to improve and refine, and I can only do that if I survive to trade another day.

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