Once again we are seeing the volatility that separates the experienced investors from the novice, and we are seeing the market separate most investors from their discipline. The markets can easily turn from rational to emotional. That is why risk management is (almost) as important as stock selection.
I have used this column to share my opinions, what I am seeing, and how I adjust cash positions and my portfolio. I have been looking forward to sharing a new professional relationship, and have not posted any new articles since early July. With the market experiencing this level of volatility, I thought I’d share this brief note.
Because I choose not to be affiliated with (constrained by) a “major brokerage firm or mutual fund complex,” I am free as a money manager to raise significant cash positions and take short positions very quickly. I do not need to remain fully invested and simply say, “You can’t time the market – ride through it.” I have shared in this column days when I was moving to 60% cash, and when I was re-investing. Looking back to my last post on July 10th, we moved cash back into the market looking for a new high in the markets – and we got it. We again took a cash position of over 50% in our active accounts, and that is where we sit. In accounts where I can hedge, we have several short positions.
Now the markets have clearly broken short term technical support levels, and the media is helping to raise fear levels. I now share the same advice I did back in October of last year: Prior to the October selloff, I gave strong warnings of a pullback/shakeout, and suggested you create your “wish list” and “wish prices” that you would buy stocks at.
Based on the put/call ratio, the public fear, and the extreme new low to new high ratio, I expect a buying/trading opportunity to show up shortly. I already throttled back on positions I really liked – as such I allowed them to push below my mental stops. Now, as the fear turns to short term panic, it is time react with discipline. Maybe by tomorrow afternoon you’ll get your wish list prices. Be ready, thankful, and not fearful.
By Jordan Kimmel. Jordan can be reached @ firstname.lastname@example.org.
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