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why I am dropping out

3/5/2014

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It's not forever.

It may not even be for a month. But dropping out, I am. The granular details of the technical momentum of the U.S. equities sector can be analyzed, the fundamental dichotomy between earnings quality and real-time growth metrics can shed further light, and who can ignore the international drama that is playing out before our very eyes. Yes, all of these are solid, critical pieces of evidence that can justify any reason to be bearish, or at the very least, cautious, but for me (and I speak only for myself), it all comes down to one thing : I'm not comfortable.

Should comfort be anyone's reason to drop out of the world's greatest stock market? Is not comfort merely an emotion, a psychological reaction layered with elements of irrationality that actually prevents us from attaining true success? After all, the greatest investors are greedy when others are fearful.

The question I want to ask is, who's greedy and who's fearful? That quality sheds much needed context in a rather ambiguous investing aphorism. Judging from the fact that the benchmark S&P 500 closed at yet another record high on Tuesday suggests that the masses are FAR from being fearful. Yes, they were scared (a little) during the Monday blues when over the weekend, Russian forces invaded Crimea (and yes, I will use the word invasion regardless of the fact that the Russian military have bases in Crimea...they do not have the right to move beyond those bases and openly threaten Ukrainian interests). But, what a difference 24-hours make! We're back to playing softball where the equipment is fake but the results are real (for now).

So am I jumping ship too early? Probably. Do I care? Not even the slightest! The S&P could magically move to 1,900 points and beyond, which would create an opportunity cost. However, there's no guarantee that such moves will last and if there's any investment aphorism that should be regarded as empirical Gospel, it's that what goes up must come down. And on the way down, the enormous velocity of panic means that I may not be able to exit a position at the most ideal, or even close to ideal, price. In fact, it's very likely that I will not. So, I'll take my chances on the road of caution.

Finally, I'd like to clarify that I'm not completely removing myself from the markets. I still have some exposure to U.S. equities through mutual funds, but the majority of my portfolio is now in extremely safe funds that will lessen the impact of any future volatility. In terms of risk capital, I am investing with extreme selectivity. In my opinion, there's no reason to be wholly exposed to mutual funds or ETF's that track the general U.S. equities sector at this juncture.

My thinking is that you'll always have time to ride up a secular bull market if indeed the optimists are correct. But a violent, bear market reversal can quickly erase years of hard work and take many more years to recover.

Again, I only speak for myself, but I've made my choice.


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