What's Wrong With Cash?
By Quint Tatro Jan 18, 2008 10:00 am
The common investor does not answer to shareholders, does not have to be fully invested and can as easily adopt cash as an investment as he can anything else.
It's a hard-knock life, Minyans, and today we find ourselves facing a big gap higher after a miserable Thursday. Unless you are fully invested, which means you experienced significant pain yesterday, or took a gamble on buying the falling safe, odds are you will underperform today if the bounce sticks. Don't let this bother you because capital preservation is always more important than trying to step into the fray one way or the other.
Should the bounce have legs I will be looking to the biotech area that has held up relatively well. I currently own some NASDAQ Biotech Index (IBB) in addition to Regeneron (REGN), but I am also stalking Acadia Pharmaceuticals (ACAD), Medicines Company (MDCO), Alnylam Pharmaceuticals (ALNY) and Martek Biosciences (MATK). All have held relatively well and look to be setting up for a prudent trade.
There is a vast chasm that separates the individual trader and the Wall Street institution but it never ceases to amaze me just how hard it is for most to truly embrace the difference. The major media parade in front of us institutional money managers who give their opinion on the economy and where to be allocating funds. The irony of is that the common thread shared by most of those giving the opinion is vastly different than an individual managing their own IRA or taxable account.
Typically while I work the TV remains on mute and is only on so I can occasionally glance at the index tickers or tune in for a special guest of interest. Recently, however, I have started to tune in, to get a sense of where the media sentiment was. While I was pleasantly surprised to hear a drop in optimism, I was shocked as guest after guest informed me where I should be investing to find safety. I sat there in amazement as not once did a person come on and say that cash was a safe place to be. I did hear great things about health care and consumer staples, how smoking wouldn't decline in a recession and how individuals would always buy cereal but never did I hear any talk of the sidelines of safety or staying hunkered in the bunker until the storm subsides.
There will always be doomsayers and those that write or preach the sky is falling regardless of the market environment we're in but not often does the major media parade in front of us someone who can easily adapt to the environment at hand and educate a viewer how to do the same. I must give credit where credit is due however and applaud the efforts of our very own Prof. Macke and Prof. Adami in that, from what I have seen, they have no problem cutting through traditional "Wall Street-ese" and relaying to the viewer when it is appropriate to step in and when it is appropriate to step out. This is atypical advice, however, and probably characterized as a riskier approach when in fact I feel every successful trader knows it is by far the safest way to play.
I realize there has been a significant decline in the dollar and as Big Ben pumps more fast cash into the system this decline will continue but on a day like yesterday, when my 90% cash hoard sat idle, I saw 'safe stock' after 'safe stock' get taken out back for a little 'Who's your daddy?'. Would it have been better for me to be allocated among these "recession-proof areas" or choosing to sit out the action on the sidelines with only a token amount of inventory?
Regardless of my thoughts, I doubt much will change as the media will always seek out the opinions of those managing vast sums of money, while trying to capture the general investing public's attention. Unfortunately, most will simply believe that since a person has unlimited resources at their exposure and has received airtime they are much more financially savvy than the viewer.
The truth is that the common investor does not answer to shareholders, does not have to be fully invested and can as easily adopt cash as an investment as he can anything else. The difference lies in embracing this flexibility and using it to a trader's advantage.
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Positions in IBB and REGN.
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