Today was a real Short crusher. No mercy and no prisoners taken. As the Indian chief said to Custer at the Little Big Horn, "Sure general, I'll give you a break".

This market is a great illustration of the importance of diversification. Even though I raised cash prior to the Fed's rate lowering action on Tuesday, I'm still long on my entire stock portfolio. I want stocks or cash. Keep it simple. Portfolio insurance in the form of options is too costly in my judgement, as the premiums are too high. And they should be high because of the great volatility of this market, but that doesn't mean I have to pay those high premiums and neither should you.

I'm not fond of going short either. The most you can make is the price of the stock, if it goes to zero. But it can double or so against you; not that you would let the position go against you that much, but it could happen with a buy-out. And then you're always liable for the dividends. I learned my lesson many years ago. In the early 60's there was a stock called American Motors. They made the Nash Rambler and a lesser item known as the Jeep. Anyway, I shorted 300 shares around 6 3/4. If they went broke, the most I could have made was 6 3/4 per share. I got bored with the position and covered several weeks later at 6, and made a few dollars.

Well, it's a damn good thing I got bored, because about that time, George Romney took over. He made many good changes and the stock went up to around 90! If I tried to hold on, I would have been margined to death and then covered along the way, as there's no way I could have come up with that money, even If I was dumb enough to want to. I don't think I was that dumb. By the way, in the early 60's, you could have bought a very nice home in a good part of town, in the high $20's.

Today's action was complicated by the expiration of options. Many big money operators short different stocks and hedge by buying calls, and today they were selling calls and buying back their shorts to close out their positions, which gave a big upward push to the market.

So much for one day's history. What counts is what do we do now? Well, here's what I'm doing. I always hold electric utilities, as they provide stability to the portfolio because of their yield, and they follow the bond market to some degree, which is a hedge as I don't own bonds. Most of my portfolio is long-term in nature, so I'm not going to try to be cute and sell at what I think is the high, and plan to buy it back later at a lower price. What invariable happens then, is that you reinvest your money in stocks that may be down when it's "time" to buy back the stock you sold. The only way you could do that, is to sell the stock you love but is "too high", and put that money in a money market instrument and just sit on it until it's time to buy back in again.

But who has that kind of will power? Everyone I know has more ideas than money, and we're all so damn confident that we can build the bankroll and have even more to reinvest when the time is right. Sure we can. Guess again. Murphy's Law is especially rough on market timers.

Perhaps 10-15% of my portfolio is for trading, and most of that is in cash now. As you know, I have been looking for tax selling to begin any time, and I think it's overdue. I'm playing that old record again, that says tax selling could begin as early as this coming Monday, November 23. Contrary to what new brokers imply, markets don't go straight up, and this one has for six weeks now.

If this is the rarest of years and there is no such selling, I'll be happy with the 85-90% of my portfolio that will benefit. But since I have those for the long haul, I wouldn't mind if they took a little gas, just so I could make some great year-end buys! That's what makes America great, folks. So accumulate cash, because history says your chance is coming, and if you have no cash, you have no chance. Because CASH IS KING!!! Stay tuned.

The Market Pro - November 20, 1998