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When is it Time to Jump Ship?


When it is all said and done, the recent drop may end up being a small blip on the radar as we push on to new highs sparked by an incredible global economy. Or it very well may be the start of something much more...

While enjoying dinner with another money manager last night, we were discussing the current issues facing the stock market.

I respect this individual's opinion not because of the amount of money he manages, which is substantial, but that his methodical approach has been consistently on target since I first met him a few years ago. We settled on a final theme that the problem facing the market today is not what we do know, it is what we don't know and can't even comprehend.

Sure, we understand what the media, Federal Reserve and even corporate big wigs are telling us, but can we really take that at face value? Will this be similar to the first crack in 2000, when everyone thought it was such a wonderful buying opportunity and stocks with no real earnings were somehow cheap? Or how about the Enron onion, which revealed more and more issues as the layers were peeled back and the truth revealed?

As we wrapped up the evening with a wonderful fruit parfait ala mode, I couldn't help but think about what our previous discussion revealed regarding the action steps to be taken right now.

It may be a bit extreme, however a good analogy of the time we are in now is like being on a cruise ship crossing the Atlantic. It's late one evening and you receive word that the ship has nicked a few ice blocks. Some immediately pass it off as nothing major, while others are remembering that only a select few made it out alive when the Titanic sunk. The captain and others assure you that all will be fine and they have plenty of steps to take in the event the hole made by the ice gets worse.

Unfortunately, as a regular passenger you have no way of really knowing how bad the damage is, and can't possibly begin to understand all the variables in play. Life boats are starting to drop out of demand from some of the passengers, but at this point it remains optional and because it is not a mandatory evacuation, once you decide to exit the ship, you forfeit the remaining ride and are sure to miss a few ports of call and are on your own out in the deep blue sea.

So what do you do? Do you gather up your family and belongings and jump ship? Is it even safe in the life boat? Will jumping ship be a big waste of time, money and lost opportunity cost?

Because of such massive uncertainty, I am leaning towards caution and am adopting another option that isn't available on a sinking ship, but is when you are playing the financial markets, and that is to do both. Rather than adopt one extreme or the other, I am choosing to do a little of both. I like the thought of lightening up to protect some capital, while keeping some money in the game to see how it all plays out.

Regardless of how smart they are, or the price of the suit they wear, no one can predict with certainty if Citigroup (C) has bottomed. No one will know, until several years from now if General Electric (GE) was a fantastic buy at $38. Furthermore, the argument that this could be simply a rebalancing into new leadership, as the like of Intel (INTC), Cisco (CSCO), and Oracle (ORCL) have weathered the storm rather well, is compelling. Regardless of these unknowns, what I do know is there is a hole in the ship and at least respecting that makes a great deal of sense.

When it is all said and done, the recent drop may end up being a small blip on the radar as we push on to new highs sparked by an incredible global economy. Or it very well may be the start of something much more, where taking cover would have been a fantastic idea. Until we know for sure, rather than guess or worse yet, subscribe to some firm thesis without regard to other possibilities, why not reel in a little capital and let it play out? If it does end up being a blip on the radar, then you won't have missed much at all.
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Position in INTC.

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