Diversified Bullish

An Investing and Stocks Blog

Aug 06, 2022

Ramblings About Stock Prices, DCA and Cash Position

I have realized a common idea most probably do. Predicting short term price movements is like picking black correctly in roulette. However, if the price does go down, that can often be a good thing for opportunistic and long term thinking investors.

The knobs and levers that influence the stock market are many. Stocks popped in July 2022. After 6 months that pummeled portfolios, we saw a massive buying response. Savvy investors must see opportunities in this hellscape of shriveled securities. So are we in the clear? Have stocks been "derisked"?

Trick question, stocks always include risk. The idea that anyone is certain about the price movement of any stock is pure poppycock. Only time will tell how high or low a stock can go. If the business's balance sheet and business prospects are strong it's easier to hold on for the ride when the market heads down.

In the coming days and months, it's impossible to know what will happen. War, inflation, disease and a public infatuation with the idea of a recession means it's all probably already priced in. July supported this idea with buying coming back in style. Or maybe the overall downward 2022 trend will continue?

My portfolio is down 18% YTD, not far off the S&P 500 index which is down about 13% YTD. After the July run-up, I want to build a large cash position, while making monthly contributions to max out my retirement IRA. I'm also hoping catch further drawdowns when they happen or hold a little more cash than usual. I've been steadily dollar cost averaging into my stocks and index funds during the recent downturn and that will continue, regardless of where we go from here. My most recent buys were adding to my S&P 500 index fund and adding to a minor YETI stock position.

Being aggressively invested with a large portion of your net worth in stocks and index funds makes you realize the luxury and life comfort you gain from holding a little extra cash. I'm hearing the dollar is stonger than the Euro now. My two weeks in Europe in 2011 tell me how shocking that is considering its superiority at the time. I'm allocated at 4% cash right now, but 10% cash seems a desirable spot to be due to my personal circumstances. Then I'll be able to pick my spots, while making regular contributions and have a little extra cash to live my life and pay the bills, travel and maybe even have a mini-retirement!