If you had cash this day is terrific. If you didn't, it's a nightmare. I expect plenty of nightmares in September, so it's good to have some cash.
Yet this is something that eludes so many that it drives me crazy.
So, I want you to discover the wonder of cash.
You know I haven't been a big fan of this market. I have been telling you for three weeks now to raise cash. Do you know that I have sold some of every single tech stock my charitable trust owns? Every single one. Why? Because bulls make money, bears make money and hogs get slaughtered. Ever as I liked all the companies that the trust owns shares in I looked at my cost basis for some of these gems and just said I am out of my mind with greed, that I owned stocks that I have doubles, triples, quadruples even at least for some lots and I have taken nothing off the table.
I know that there will be people out there who will say that violates all the disciplines they have been taught: buy and hold, don't overtrade, think long term.
All of those are well and good. But they do not supersede the most important concept in the stock world: While conviction about a stock is incredibly important, discipline is the most important concept in this business and discipline said I had to sell shares in some of my most beloved stocks for my charitable trust, which you can follow along by joining the Action Alerts PLUS club.
I made the sales without even question and I literally hid in my tomato aisles when they were executed. That's how horribly I felt selling them. But, as is often the case, when you recognize that you are about to go to the Hormel (HRL) slaughterhouse, I got out in time and at very good prices. I don't feel like I am bragging. I was simply doing exactly like I told you I was going to do.
By Tuesday stocks had been down so hard -- a 10% decline in three days -- that I fully expected a bounce and that bounce, again, should be sold if you haven't taken anything off and are just running around with a full boat, or, for heaven's sake, even borrowing money. Shame on you if you are borrowing money. I am fine with borrowing money for a house, you are living in it. But borrowing money for stocks? You try living in some Nikola (NKLA) . Try sleeping on some Occidental (OXY) .
We have about 15% cash for my trust, a very high amount. Why so high?
First, the market's been incredible and you know I have said I hate Septembers. Historically a tough month.
Second, as I showed you last night with the work of one of my favorite technicians, Carley Garner, the risk reward here is not so hot. Garner said that we could go up a bit, which we did, strangely, on Thursday morning, but then the risk could be skewed to the downside. Everything about this business is risk reward and she made it clear that you would have to risk too much for that upside reward.
Third, it's not unusual, but there is an even more heightened frustration with Washington than in have seen in some time. Maybe you don't feel it unless you work in an industry that has been trashed by the pandemic and needs social distancing to stay alive, but when you close restaurants and gyms or let them be open at only 25% of capacity, that's the death knell to pretty much every café and bar out there. Think about it. Use Bar San Miguel, the Mexican bar I own in Brooklyn. We have been closed because of our mayor. You don't make much money when you are closed. But now we can have a quarter of our restaurant open and no bar. Do you know that not a single one of my costs has come down? Do you think I would ever open a restaurant where knew I would lose oodles of money? If we could have half of the people we used to have, then maybe I would be game. But right now, I am thinking what the heck am I doing? And believe me, this was a labor of love to begin with. How about the millions of establishments that aren't a labor of love and the millions more who work there and are about to lose their jobs? The fact that Washington can't figure out what to do is just pathetic.
Fourth, stocks came down 10%, but that doesn't make them cheap. We have plenty of companies we talk about all of the time that trade at nosebleed levels. In an election year no less, with one candidate who is certain to raise taxes on stock gains and the other who seems to be on a collision course with China. Both love bashing the drug companies.
Finally we have some real chinks here. Oil goes down 10%, and suddenly we have a list of oil stocks that seem like they can be knocked over with a feather made worse by a Colorado oil and gas regulator which just made it much tougher to drill in the state. At the same time the banks are horrendous again. We learned today that Michael Corbat, CEO of Citigroup (C) , is retiring in February and he will be replaced by the best person for the job who also happens to be a woman, Jane Fraser. I took a look at how Corbat's done during his time as chief executive, and it's amazing how much more money the bank is making, how efficient it is vs. when he took over and how much capital he has returned to shareholders. You would expect the stock to reflect those great figures, but it's a bank and like the oils, bank stocks just don't go up.
This brings me all the way back to cash. If we hadn't sold so much stock for the trust, Thursday would be a horror-show. We would be just sitting there, looking at the prices and saying, How could we not have sold when we had the chance? Do you think we would be looking for opportunities? Maybe spotting anomalies and stocks that we have been waiting for to go lower. Would we be bat on our shoulder, waiting for a perfect pitch?
No. We would be sweating bullets and if we were on margin we would be holding on for dear life.
Cash gives you a mindset that's fantastic. It allows you to sit back and see which stocks you wanted to buy, if they only were to come in. Given that we haven't given up all of the gains we have made Wednesday and tested the low, I took the day off to think bigger about what the portfolio needed.
Cash allows you to do that. It's an amazing asset, the only one I know that gives you freedom and security. It is incredibly underestimated as something to own after a very big run in a very bad month.
And I am in no hurry to spend it. Do you that almost no stock I have suggested you buy on a pullback his hit any of the levels that I suggested or hoped for. That means you wait. Without a lot of cash you would be selling something to buy something. If were borrowing money, the broker might be selling you out.
So, think of days like this, if almost everything you own is in cash after a monster run. Think about how you feel at the end of this day. Sure you can play fantasy tonight when the Chiefs play the Texans but in reality? You've lost too much money to enjoy it.