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INM Sept '06 - When Cash Isn't Trash
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net
CANSLIM.net


Recently I was listening to some disappointing statistics that once again revealed how only a slim percentage of all mutual funds manage to actually beat the performance of the benchmark S&P 500 Index.   You have probably heard it said before that 90% of mutual funds fail to match the S&P 500’s performance, right?  But then I heard another statistic that was even more troubling.  It argued that the majority of mutual fund investors did not do as well as the funds they had invested in.  When the fund had averaged X return over a certain period of time, the majority of investors in that fund averaged less than X return.  This was because of investors having notoriously bad timing.  Well now, that ought to inspire you! 

 

Maybe this will inspire you to do something else with your cash besides camping out in ordinary mutual funds for the long haul.  Those funds are often chosen by investors because they are so commonly looked at as the “ideal” investment vehicles.  If you can not grow bored, and you can actually be content with getting close to average returns, then maybe mutual funds are the right choice for you.  But as an investor with greater than average ambitions, I do not want to be damned to such mediocrity, so I use CAN SLIM to help me rise above the “average” level.

 

Timing is critical to your success.  Unfortunately, the market does not normally work on the time clock that most investors are operating on.  I see many investors that have a tough time with the notion that there are times when it is ideal to be positioned on the sidelines in cash.  Others hesitatingly nibble at stocks during the market’s stronger times, right when they really need to have confidence to be diving in more aggressively.

 

Even if you have not read each monthly column I have written since June 2000, you have probably heard it pointed out many times before elsewhere that there are certain periods where they say “cash is king”.  Periods of strong upward movement in equities have, in the past, prompted many to say that “cash is trash”.  In a roaring bull market, as it is taught in the CAN SLIM® Certification program, you should even be very aggressive with margin use.  I am not kidding with you folks here!  This system argues that when your odds of success are very high, you would actually be foolish to not use the leverage of margin.

 

Maybe some day in the not-too-distant future I might feel the market is being strong and cooperative enough to warrant my clients going on margin, but for now there is just not enough leadership in the market. I am selectively buying some isolated leaders, but still holding on to some fairly substantial cash positions in most client accounts because leadership in the market has been hard to identify lately.  Many pundits are calling for better action after the long Labor Day weekend has passed and more traders are back from vacation.  But in actuality, this August was much better than average.  Does that mean that things will really start to heat up and rise after the holiday?  I don’t know, and I wouldn’t dare to predict.

 

What we will do is watch what happens and be ready to react with very quick reflexes if a promising buy candidate starts to light up with heavy volume and gains that lift it to new highs.  We will watch the new highs list and study each stock appearing on it daily, especially issues with 80+ EPS and RS ranks.  We will watch for greater numbers of new highs, which would be a clear sign of growing leadership.  We will buy properly, only when all key criteria are met and the stock is showing that it is in play by flashing above average volume on its breakout. We will concentrate funds in just a small handful of carefully selected leaders.  For most investors, three or four stocks would be the perfect number and any more than that can work to your detriment.  Margin is something we will look to employ with the utmost caution, and only if we see more compelling action in the market.

About Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net :
Kenneth J. Gruneisen has successfully completed the CAN SLIM® Certification Program.  Mr. Gruneisen became a Registered Representative in 1987 and his career includes experience offering personalized assistance to investors with more than a decade of experience as a Registered Principal managing a branch office.

The recommendations made by CAN SLIM® certified individuals are their own and may not be attributed to the CAN SLIM® Certification Program, William O'Neil & Co., Investor's Business Daily or their affiliates. The CAN SLIM® Certification indicates only that the individual has successfully completed the CAN SLIM® Certification Program. CAN SLIM®, William O'Neil & Co., Investor's Business Daily and any of their affiliates are in no way responsible for any loss or damage caused as a result of the services provided by these individuals.


Comments contained in the body of this report are technical opinions only and are not necessarily those of Gruneisen Growth Corp. The material herein has been obtained from sources believed to be reliable and accurate, however, its accuracy and completeness cannot be guaranteed. Our firm, employees, and customers may effect transactions, including transactions contrary to any recommendation herein, or have positions in the securities mentioned herein or options with respect thereto. Any recommendation contained in this report may not be suitable for all investors and it is not to be deemed an offer or solicitation on our part with respect to the purchase or sale of any securities.

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The recommendations made by CAN SLIM® Certified individuals are their own and may not be attributed to the CAN SLIM® Certification Program, William O'Neil + Co., Investor's Business Daily or their affiliates. The CAN SLIM® Certification indicates only that the individual has successfully completed the CAN SLIM® Certification Program. CAN SLIM®, William O'Neil + Co., Investor's Business Daily and any of their affiliates are in no way responsible for any loss or damage caused as a result of the services provided by these individuals.

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