Markets (2/7/2018)


Volatility….fortunes are made (it’s a day-trader’s dream) and fortunes are lost (the seller’s of the VIX, the holders of XIV) with volatility.  We are embarking on a new market phase where intra-day volatility has returned.

Day traders use this phase to profit from these swings.  They sell resistance and buy support.  It’s been phrased as “selling the pops, buying the drops.”

*( I personally day trade on occasion with some “play money” but I’ll never post the trades as day trading options contracts is not appropriate for this blog.  Having said that, using 2-3% of your portfolio as “play money” is completely acceptable.  I personally don’t trade crypto-currencies but I see no wrong in allocating 1% of your portfolio to a crypto like Bitcoin or Ethereum).

For those who are planning for early retirement you should use your ample supply of dry powder (cash) to purchase equities during these drops.  *In a future posing I’ll discuss appropriate asset allocations based on an individual’s risk tolerance, not based on age.

Every asset allocation, no matter how aggressive one is, and no matter how young the investor is; should hold ample cash.  Stock market valuations are at all-time highs.  The sentiment readings over the past 90-days have been very Bullish.  The stock market has been rising for months-on-end.  It would have been prudent for investors to have used the past 60 days’ rally to lighten up on equities, take profits and build cash reserves.  Holding cash is NOT a bad thing.

Financial professionals will advise their clients to hold minimal cash and allocate heavily to equity investments.  Otherwise their performance suffers from “cash drag” and the investor will suffer opportunity costs.  I call bullshit on that wisdom.  Holding ample cash  reserves will minimize portfolio volatility and enables the investor to re-balance their portfolios at the most opportune times.  Instead of referring to yourself as an “Investor,” refer to yourself as an”Opportunist!”




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