Cash In The Second Half Of 2008
Back in May, I wrote an article about why I was reducing my positions. It turns out, it was the right move based on the sharp downturn in stocks over the last month. The question is, what should we do now? Stocks are in bear market territory, over 20% off its highs. Is now the time to buy or what?
While stocks are cheaper, it does not necessarily mean they are cheap. Regardless of what has happened in the past few months, it is important to disengage and emotions associated with your portfolio performance over the last few months and focus on the rest of 2008 and beyond. If you are pissed about a stock that is killing your portfolio and are determined to make a gain from it, only hold on to the stock if there are compelling factors which lead you to believe it will bounce back.
What does the common sense outlook look like for the economy and for stocks? Do you think there are more headwinds or tailwinds for the economy. Common sense would say there are more headwinds. Even if oil goes lower, it is unlikely to drop below $100. Housing is likely to continue to deteriorate, and when it does stabilize, the eventually upward growth will be minimal at best. Consumer confidence is horrendous.
The Second Half Of 2008
The second half of the year is likely to bring more pain in the markets. I would recommend defensive stocks like Philip Morris International (PM). I am even scaling back my position in Apple (AAPL) which has been one of my big winners. Eventually the economy and consumer confidence should even affect Apple.
I continue to recommend pulling out of many stocks. Remember most stocks will follow the direction of the overall market. Increase your cash position, but be ready to deploy your cash when the market is at its worst.
Looking for a way to make money regardless of how ugly or good the economy is, no matter what direction the stock market is going? Check out this post.