When Cash Is a Better Investment
Many investors and money managers turned bearish in late January when they were faced with the lackluster economic data combined with weak emerging market data. The negative sentiment made some managers sell their equities and invest in cash such as Treasuries and money market accounts.
When the market continued its downward spiral, Crosspoint Capital Management, a San Francisco tactical asset manager, made a contrarian move and sold all of its stock holdings and invested 100% of it in cash, said Kyle Shealer, a co-founder.
"It was a big event when we went to cash," he said. "We're very aggressive on both sides. We were not trying to make money. It's often times a fool's errand to try to make money in a downward moving market."
As the market reversed its losses, Crosspoint got out of cash and moved back into stocks late in February. The firm typically invests in 20 to 30 stocks that are in the top 20% of the market based on performance data generated from its proprietary software.
"We had to get back in," he said. "We don't invest based on our gut feeling. We look at what the overall market is doing. We pick stocks from the technical data, but support it with fundamentals. Our first priority is not losing money. Our second is growing it."
The biotech and pharmaceutical sectors have been strong in 2014 and are good investments, Shealer said. Some of their current stock holdings include World Wrestling Entertainment, United Rentals and Green Plains Renewable Energy.
"We try to take all of the emotion out of investing," he said. "Investors need to have a disciplined strategy since buying and holding has left investment gains hard to come by since 2000."
In this current market environment, investors have the potential of "sitting in a stock and bond bubble because of where interest rates are," Shealer said.
Preserving your capital can be more vital than growing your investments, he said. Investors who bought equities in 2007 are just now getting back to even in 2013 from the losses they sustained. Investors who sold their equity holdings at the bottom of 2009 lost 55% of their money if they held it from the top in October 2007 and needed to make a gain of 122% in order to reach their original value, Shealer said.
The average investor needs to focus on it preserving capital.