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The market is overbought, again, preservation is the key

The market is now entering a new era. Back in October 2022, when I called the bottom, it was an easy pick. You could pick any tech stock, and today you would be a winner. Yes, the traditional stocks were the laggards, but since then, they have picked up the steam and rallied as well. But today, the valuation is a problem once again and the market is overbought.

During the days when bears were all around predicting the end of the world, I was buying shares of Apple, Amazon, Google, and other tech stocks. I wish I had more cash to buy more of these stocks. Bears were raging, I was buying. Now the bears are turning into bulls, chasing the stocks that are now expensive again, and I am sitting on large gains. My Apple position is at 69% gain, Amazon at 52%, Google at 14.7%, SNOW at 1,132%, SPXL at 111.7%, and MSFT at 37.8%. And these stocks are no longer cheap. Former bears are chasing them, I keep sitting tight and creating cash reserves. Cash and gains preservation is the key now.

My problem was that I was buying on margin. And during the bear market, the margin was shrinking fast. And although I had almost $40,000 in cash, I needed more. I invested during the bear market and increased my stock holdings by 40%. This effort will pay off later in the future. In dividend income, it is already paying off. In 2022 the dividend income doubled (it went from $2,785 to $5,868 annual income). But it took a lot of work. I constantly ran out of buying power despite holding $40,000 in cash. I raged at my broker and their Apex clearing firm for increasing the buying power maintenance and ruining my path to millions. But then I realized that a $200k portfolio needed more cash to cover margin requirements during the bear markets.

market is overbought

So I am now advocating for cash preservation. Cash is king now that the market is overbought and there is still a risk that we may see a recession.

I do not think this market will crash. We are in a secular bull market that will last another 10+ years. But that doesn’t mean we will see a smooth straight rally. There will be volatility. We will see pullbacks, corrections, or bear markets on the way up. And the portfolio must survive these pulses. In 2022, I was trying to buy depressed stocks, but then when the market dropped again, I was forced to sell them (my biggest regret was Netflix when I bought it below $200 a share but was forced to get rid of it later due to a margin call. Today it trades at $400+ a share! It is now late to be buying). I realized that to survive, I must double my cash reserves.

When the markets are falling, buy hated stocks; when the markets are rallying, save the cash for the time when the markets turn around again. Preservation is the key. And today, it is time for preservation!

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