Those of you who have been following my blog and published articles over the years know I have been sitting in cash for a very long time. Last year the markets really didn’t do much, so holding cash turned out to be a really good thing, especially considering the amount of risk in the market last year. The previous year (2014) was not the best year to sit in cash, although there were a few opportunities to buy during the year, which I was able to take advantage of, and that paid well.
Last week I began putting some of my cash positions to work for portfolios I manage, and so far have invested about one-third of the cash I hold for clients. The NASDAQ has been hammered so far this year, so a lot of the growth-oriented names are down significantly. Likewise, because crude prices have been clobbered, I have been able to buy some of the big oil names at very reasonable prices. Some of the financials look especially attractive here as well, and I have purchased several names in that sector.
My investment approach (I refer to it as sector rotation) involves identifying and investing in those sectors of the economy that look undervalued and attractively priced with good future upside potential given the context of the overall economy and stock market. For my strategy to work, and for me to take risk to buy stocks, I need the overall market to also look undervalued and attractively priced with good upside potential. For this reason, I have been forced to sit in cash for all this time, waiting. Finally now that stocks have pulled back somewhat, there is reasonable value in the market. With that said, I still see strong potential for further downside, especially in the short-term, to at least 1850 on the S&P 500. We could easily see 1800 or even a lower level. For this reason, I have only invested about a third of my cash to-date. If the market bounces in the short-run, that is fine, I will wait. If we see more downside, I will look to buy specific positions in companies that look attractively priced.