Sell All Stocks!

That is what some smart money managers do when they go on vacation. They sell the entire portfolio and let it sit in cash for the 2 weeks they are away. No chance of an unexpectedly bad earnings report tanking a stock. No reason to check into the office. No likelihood that any client will call looking for an update on the portfolio. In other words, a real vacation – totally removed from the daily grind and volatility of the markets. Upon their return, these portfolio managers would review the stocks they had held and would buy back only the ones they really liked. This annual purge would help them from becoming too emotionally attached to any one stock and would reset the cost basis for each stock in the portfolio. Sometimes our cost basis on a stock can cloud our judgment and prevent us from being as objective as we would like to be.

Although I’ve never done this over the course of my career, I did just take a vacation, and I really enjoyed not actively looking at the market for 8 trading days (I did take a peek a couple times). Our active itinerary (four days in Yellowstone National Park, two days visiting family in Billings, Montana and two on a real cattle ranch near La Barge, Wyoming) may not be typical, but was nonetheless relaxing and fun for my family. Upon my return I was able to review all the stocks in my active universe of coverage and, lo and behold, I still liked all of them. I tweaked a few price targets due to higher expected EPS estimates (it turns out that the forecasts companies made earlier in the year amid the worst fears about the economy were too conservative!), but all in all, the list of stock I like remains solid and attractive.

That said, I am still hearing commentary here and there about the market being “overbought” or that a correction is inevitable. In most cases, this commentary comes from people who wanted investors to sell stocks and raise cash in March. As long as $5 trillion of investable funds are sitting on the sidelines and a large portion of the commentary is negative, I find it hard to believe that a major correction is likely to happen. It could, of course, and I never make predictions, but I feel very comfortable owning stocks right now.

So, returning the title of this note – “Sell All Stocks?” Now? Get serious. No way.