As I disclosed late last year, I plan to be transparent about what I'm doing with some personal retirement money in the interest of following the market.
Frankly, nothing has changed in the past month. I'm sitting on a large amount of cash and a small short position. You might say, "Ouch!" To which I say, "At least the short positions are small."
And the next question you have is "What are you going to do?" Like some Zen Buddhist meditating on a mountaintop, I'm going to do nothing. I may do nothing for two months. I'm in a mood to wait and start deploying the cash over a long time horizon. The market jumped 10%, and I missed that, so I'll wait for another opportunity
Since I have 90% cash and only a small short exposure, I can take the pain for the time being. The way the market is trading, I do not trust it. I'm waiting for another downturn in which I cover my shorts for a profit and buy stocks.
Things can change quickly in this market. Even though the stock market rose strongly in the beginning of last year, you could have waited and bought stocks more than 20% lower later. I was correct in my estimation that it was time to "sell in May and go away." I was also lucky enough to buy a few good stocks in August and sell them for a profit in December. I made only about 4% on those trades for the year -- but at least I did not lose money!
I'm not panic buying, because I think the market is still dangerous, and we may very well have another choppy pattern punctuated by vicious selloffs, like we had last year. Apparently, George Soros agrees with me.
Here are the five reasons I think the market is still dangerous:
- The Greek situation is still unresolved.
- Last year, the S&P 500 ranged from 1,074 to 1,370. That is a large range. The market topped in April and then fell nearly 22%. The market finished flat for the year, but it was a volatile year, and as we've demonstrated, a lot depended on when you bought and sold.
- Our own Fred Goodman has a proprietary indicator that says this rally shows signs of topping out. In this rally, the S&P 500 has only gotten back to 1,320, which is still well below last year's high. So a failing rally here would be seen as a big failure, because we were not able to capture the previous year's high.
- Volume is abysmal. It's amazing that during this "rally," stock market volume is at a five-year low. I'm not convinced to invest in a weak rally on low volume.
- Profits show signs of topping. Analysts are bringing down their estimates for the first time in years, and the IMF sees slower growth in 2012.
Yes, I missed the "pain rally" in the last month -- painful because so many people are not participating in equities -- but I'm not going to sit here and cry in my milk. I'm going to be patient, wait, and build a really good list of stocks to buy in the next downturn.
To update you on what we will be doing with the portfolio in 2012, I will be launching a new "Model Portfolio" for 2012 that reflects all our virtual trades as we try to zoom in on the best stocks in 2012. Next week, look for:
- My Portfolio Update
- A list of great stocks to watch and potentially buy in 2012