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Cash In The Second Half Of 2008

10 July 2008 4 Comments

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.

4 Comments »

  • eric said:

    Hi found your blog from a friend. I see your big on PM I have only 80 shares in my portfolio, Im 19 but its by far my biggest holding my grandpa told me to buy altria when I was 17. I was wondering if you think it will continue growing at 15%+ for the next 20 years +. It makes me worry because Coca cola is a bigger product than cigarettes or so I think and the stock has not done that much in the past decade but I always get excited about PM when I read it was ben bernankes only stock in his portfolio. Also how long would you keep adding to PM in my case since I dont ever wanna sell hold it until I die 50-60 years from now

  • kevin duffey said:

    Eric, thanks for the comment. PM is one of my favorite stocks as you know. I think it will be great over the next 5-10 years. It is hard to say what it will look like in 50-60 years. Nobody can forecast that far out. Focus on the next few years and out to ten years and constantly re-evaluate the stock. If the stock looks like it will perform for 10 more years when you re-evaluate in 10 years, then go for it.

  • Deadhedge said:

    Why do you think the housing market will continue to deteriorate? There will always be a demand for housing as people go on the scale to starter house, family house, empty nest house, etc. After the glut of housing in the outskirts of towns is consumed, supply will level off.

    Houses in good school districts and good locations (close in) will grow. Also, housing markets are local as some markets have done fine where there wasn’t overbuilding.

    The housing market was overbuilt but there will always be a market and it will correct itself. Florida is worse than other parts of the country but otherwise, why are you so down on housing?

  • kevin duffey said:

    Deadhedge,

    Housing IS continuing to deteriorate. The fact is there are still a bunch of foreclosures happening and loans failing.

    I recently bought a house, and in my first hand experience looking at struggling developments, it has a long way to go. There are so many houses out there that are upside down that will have a tough time selling for the foreseeable future.

    Thanks