Opinions
Stephen Groff
CASH
CASH
PAST TOP PICK
Dec 05, 2016
Stock price when the opinion was issued
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The markets in Toronto and especially New York have done very well the past two years. It's time to pause. Typically, markets will go sideways or fall. It's likely we'll see more volatility like in December. Higher interest rates will hurt growth stocks, particularly tech, and overall markets. He's cautious near term.
He's now at 20% cash. The S&P just broke below its 200-day MA. He doesn't have opinions about these things, just lots of rules. One rule is to give a breakdown between 3 days and 3 weeks grace.
Next week, if the S&P is still below its 200-day, he's going to raise another 5% cash for a total of 25%. He'll just have to keep an eye on what's happening. He gives it at least a 50% chance that we're falling into a bear market and, if we do, he'll move his bare cash into something that at least pays some interest. Lots of ways to park cash.
If he thinks it's just a pullback within a bigger uptrend, he wants his cash ready to deploy into opportunities. He wants it readily available, with nothing in his way. But if he becomes even more convinced of a bear market (POSSIBLY something like 2022 with a 25% drawdown), he wants cash in a vehicle such as a HISA, as he knows it'll be there for 3-4 months as the market continues to wash out.
He has too much cash in his portfolio as a consequence of some dispositions. Normally, he tries to run 10-12% in his portfolio, and he's much higher than that right now. This has happened over the last year or so. He's been unable to deploy all his cash in suitably attractive opportunities. He's comforted in the fact that Warren Buffett's in a similar situation.
Cash gives you the tools and sometimes the courage to take advantage of difficult market conditions.
People accuse him of always being bullish, but that's actually not the case. He's played defense through lots of downturns. There's a time to be aggressive and a time to be more cautious. Right now, there are so many uncertainties that having cash gives you flexibility. Some of the best investments you'll make are when you see something hold up when the market retests a low. His client portfolios have between 35-45% cash.
The current situation could be short term, or it might be a more drawn-out process. His guess is that the news flow will stay bumpy. He likes to have an option to make investments as we see leadership become clear. There's no race to do that.
(Note the short timeframe.) We have a yin and yang market. He just published a video yesterday on this, with 4 technical reasons why the market is bullish, and 4 fundamental reasons why it's bearish. His conclusion is that we'll probably get a pullback in the near term, and then it all depends on what the orange man says next ;)
He's holding some cash because markets rarely make V bottoms. A pullback to the 200-day moving average or so is likely. And then maybe the market will go up. But he can't make that call today.
(The total return depends on how and where an investor held the cash.)
(Note the short timeframe.) Summers are historically slow; particularly August, September, and October. People get seasonality wrong; it's just a tendency. Say you drive on the 401 in Toronto at 4 pm, the tendency is a big pile of traffic. At 4 am, the tendency is for way less traffic. But it doesn't mean there won't be a pileup at 4 am, or smooth sailing at 4 pm.
Over those months, the VIX tends to be a bit higher. Though it hasn't been this August. But doesn't mean it won't be in the next couple of months. So he likes to be a bit more defensive at this time, buying more defensive stocks and holding a bit of cash.
(Top Pick Sep 7/16, Flat) He would have preferred more money deployed. He is holding 30% cash in his funds.