While the market has been rising steadily in the last month, I have been looking to raise cash.
It's not that I expect a crash, but we have seen two hard falls in the last year - in August and in January. While the market recovered from both, there's a lot of volatility out there, and volatility is always an opportunity.
My strategy has been to look at my holdings at these highs and prune the poor-performing gainers. I got out of Synchrony (NYSE:SYF), the General Electric (NYSE:GE) spin-off. I got out of Boeing (NYSE:BA), although later than I should have.
This means I have almost 10% of my retirement assets in cash right now. That's something that will usually burn a hole in my pocket. I need to maintain discipline and not jump back in too quickly.
I have found some interesting opportunities, good companies it makes sense to invest in with a three-to-five year time horizon. I really like Facebook (NASDAQ:FB). I like United Health (NYSE:UNH). I think a self-directed investor needs to regularly seek out names like these and create a "buy" list for a fall, at the same time they're pruning their list of holdings during a market top. Next time the market falls, I know where to go with my money.
I am not going to pretend I can time this market with any precision. I have learned, over the years, that I tend to be early, early to spot opportunities, and too early to sell out. That also means I'm early to spot trouble, and early to warn others about it. Knowing your own faults as an investor is important, and that comes with practice.
For instance, I spent the late 1990s screaming about how the Internet boom was going to bust, that most of its stocks were overvalued, and that the dot-boom was going to turn into a dot-bust. Sure, I was right, but I missed what could have been a glorious ride during 1997-1999.
At the same time, I failed to amass much cash before the two recent sell-offs, meaning I didn't have much ammunition when it came time to play. All I could really do was nibble around the edges of my portfolio. I got some profit in Wal-Mart (NYSE:WMT), then traded it in for Intel (NASDAQ:INTC). I should have been more aggressive, selling in July and December, in order to be more aggressive in buying after the swoons of August and January.
That's why you want to have cash. Cash doesn't grow. Cash actually depreciates. But cash, I've learned, is your cushion in good times, your guarantee that you can take advantage of bad times.
I think former chairman Paul Volcker offered the best advice I've ever heard on stocks, in a story that may be apocryphal but speaks to his calm demeanor. A woman supposedly asked him what the stock market was going to do. "Madam," he said, "prices will fluctuate."
So they will. Just be prepared for it.
Disclosure: I am/we are long GE, INTC.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.