Thoughts from Justin Mamis

Pointed out by Kelly Letter subscriber Brian, the cash to assets ratio of equity funds has fallen to almost 4%. That’s down from 5.1% in May, 4.4% in June, and 4.2% in July, according to the Investment Company Institute.

Brian was prompted to look into the current data after reading Justin Mamis’ When to Sell, from which I share the following:

The Unites States itself has already become, in a manner of speaking, a mature company; what used to be growth pains and then middle-aged aches, now shows bureaucratic signs of arthritis. Were it a common stock, one wonders who would buy “America” (ticker symbol: USA; earnings: negative; management: questionable; long-term debt: enormous; potential for bankruptcy: increasing) on the grounds that it still merited a growth stock’s price/earnings ratio.

Not to sell, therefore, is perhaps the riskiest investment approach of all. Nevertheless, it is surprising how many naive investors still venture their capital on the assumption that there’s indiscriminate growth ahead. As growth itself becomes a struggle — and for every company that flourishes, scores of others have the market equivalent of Andy Warhol’s “fifteen minutes of fame” — it will be all the more difficult to pick the few companies that will survive with their earlier promise intact. It is far better and easier to learn to sell at the sensible time, a time predicated not so much on earnings growth as on the market’s and the stock’s “natural” fluctuations.

He wrote the first edition of that book in 1977 and updated it in 1994. The more things change, eh?

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