Cash Is A Position


I go to the Money Show every year to visit withfriends who have booths and are speakers. Thenwhen folks are filing out of lectures I listento their comments on what I know the speaker hasbeen saying.

The Money Show is for investors from all walksof life; however, my guess is the median age isclose to 60. Those who go have accumulated anest egg and now are retired or very close toretirement. They came to learn more about how tomake their money grow.

Last year there were 256 separate events notcounting what was given in the Exhibition Hall. Almost without exception speakers were showinghow cash can accumulate faster if the listenerbought his product whether it was a mutual fund, stock, bond, partnership or who knows what. Arethere that many money makers out there?

One speaker had an hour telling the market wasdue to crash and the thing to do was buy longterm put options. He also said if you would notdo that to buy some government bonds which werepaying about 2 to 3%. The exit comments I heardwere pretty well summed up by one lady who said,"Is he nuts. How can we live off 2%?"

When you are in a bear market the old sayingis, "He who loses the least is a winner". No, you can't live on that small a return, but youcan lose large sums by trying to be invested atall times. There have been many years in thepast where cash with no percent return beat theheck out of the stock market.

Go back to 2000 and remember the NASDAQ lost 78%of it value in 3 years. Since March 2000investors in the 50 hottest-selling mutual fundshave lost an average of 42% according to theLipper Analyst. Fidelity Magellan, the largestfund at that time remains a loser of 23% andJanus, 4th largest, is down 45%.The Buy NHolders have still not recovered theirinvestments.

If you had sold out near (I did not say at) thetop, say within about 10 or 15% your accountwould have been pretty darn healthy when itfinally did start back up. You would not havelost 30 to 40% or more of your hard-earnedmoney. That is what I refer to as a "reverseprofit".

If you had put a loss limit on your portfolio of10% on each position and taken out just enoughto live on it probably would that have been lessthan letting it stay invested in the market? Youcan easily check that.

Putting 100% of your money in a money marketwhile the market is declining does not mean youare not invested. You are invested - in cash. This protects your savings from huge losses thatcan and do occur regularly in market cycles. Ihave written about those 16-year cyclespreviously.

The smartest investors set a limit from wherethey bought from the highest price their equityhas reached as to where they will sell if itstarts going down. Usually 10% is the rule ofthumb, but it can be 5% or 20%. That is yourchoice.

All investors must learn that cash is a positionor they are sure to lose their money.

Copyright 2005


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