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Real Questions from Real Subscribers

Q: Where can I find the rules about your cash allocation? Are you 40% in cash for a bearish market, 20% in between, and 0% cash with the Transports and Industrials bullish?

A: Dear Subscriber,

We don’t set hard and fast numbers for our cash position, and as such there are no rules to publish. We can, however, provide some guidelines:

1) In general, when the Dow Theory is bullish, we hold less cash than we do in bear markets. Our cash position also depends on the market’s valuation, investor sentiment, and the opportunities available in individual stocks.

2) We never get entirely out of stocks. In the last 15 years, we’ve never gone as much as 50% cash. We rarely go to 100% stocks, though cash positions of 5% to 10% are not uncommon during bull markets.

3) Within either bull or bear markets, we adjust the cash position as we go, mostly based on our ability to find attractive stocks.

4) While we occasionally change our target weights en masse, most of our cash-position changes spring from buying and selling individual stocks.

Thanks for your interest,

Bob Sweet, CFA
Managing Editor, Dow Theory Forecasts

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