My Stock of the Month advisory is as simple as investing gets. It's just one pick each month. And I never hold more than 12 stocks in my portfolio at a time. I like a manageable number of holdings that I can watch like a hawk.
But there's a catch...
I'm accountable for all of my investment recommendations. There are no "do-overs" or false starts. If I make a bad call, then it's there for everyone to see. As you can imagine, this gives me even more incentive to put a lot of thought, research, and analysis into my monthly picks.
And so in September, I did what I thought was best for my subscribers and my real-money portfolio. With the market looking shakier by the day, I went off the beaten path. Instead of a traditional stock idea like I normally recommend, my "stock of the month" was cash.
Little did I realize that my pick would be so controversial. A few weeks later, I got this email from a subscriber...
"I have cancelled my subscription and wanted to let you know the reason. I waited a month to see if I would calm down and get over it, but I'm still mad. Last month's "Stock of the Month" was CASH! Cash is not a stock. If I am paying for a premium stock-picking service I don't want to be told to hide it under the mattress. The least you can do is deliver one measly stock pick a month like you promise."
Out of privacy for the reader, I won't reveal his or her name. But to say the least, the comment took me by surprise.
What caught me off guard was the fact that the email came an entire month after I made the call -- a month in which the S&P 500 had fallern 7.2%. That's right... cash whipped the stock market in September.
I suspected that by picking cash I might raise a few eyebrows. After all, people are looking for ways to make money, not sit on it. But market conditions were unusually unforgiving. The major averages were fluctuating by multiple percentage points within a day -- sometimes within hours.
I just didn't think it was right to recommend some "measly stock pick" that was vulnerable to that kind of frenetic price action. And in the market, avoiding a loss can be just as important as booking a gain.
Although I have since put more money to work in the market since September, I still have a prudent amount of cash in my portfolio. And I always recommend holding a little cash as an investment -- even after October's healthy rally.
I'm not suggesting you sell everything in your portfolio and run for the hills. But holding a little extra "dry powder" is never a bad thing. For one thing, it allows you to sleep a little better when the market roils, which may be a distinct possibility in the months ahead.
The rally might have boosted confidence, but there's still a lot of uncertainty floating around. Growth appears to be slowing in Asia, the United States is still lagging economically and then there are the seemingly endless problems in Europe.
So though October was a solid month for stocks, I'm still leery of diving back into the market head-first. Until there are stronger signs of a recovery, I'm going to continue to keep a portion of my portfolio on the sidelines in cash.
Of course, I am always looking for fundamentally sound investments to buy, and this sort of fear-driven environment can present a great chance to pick up good stocks at a cheap price.
If I see a security I like, I can easily let the volatility in the market get me a better purchase price.
And that's another advantage of having cash at the ready...
Bargains don't stay bargains for long. And I've always found that cash is hardest to raise when you need it the most. If there's not enough cash in your account to finance the trade, then you're out of luck... the opportunity is gone.
After all, the days of wild stock market swings are far from over. The global economy has a long way to go before I'm convinced things are "settled." And as I'm sure you're aware, this sort of rocky environment makes it difficult to navigate.
The Investing Answer: So if I receive another nasty email or two, that's OK. I know it's a contentious pick, but I'm going to risk the backlash and continue to recommend holding a slug of cash in your portfolio. As it stands, it still looks like one of the most opportunistic investments -- for my Stock of the Month portfolio... or yours.
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