Why we have a 35% cash position in this market

February was a more active month than I thought it would be. While we still have a hefty cash position of over 35%, I did manage to find one interesting buy. For the most part however, it was a case of taking profits as stocks reached full valuation in my opinion.

While some people may pull ahead of the portfolio in performance due to our large cash position, I would rather stick to my discipline than invent new ones after 25 years.

I am a bit concerned that making money in this market is getting a little too easy and finding new investments is hard, but as Benjamin Graham was fond of saying, “every day the market gives you a choice.” In other words, the market may not be entirely rational but it is the market we deal with.

While I admit that the stock is probably cheap by traditional standards, I don’t like what the company is doing at all.

Everything I have read about the Nokia deal smacks of desperation; in my opinion, nobody likes Windows 8 or 8.1 that much and the Playstation 4 is outselling the Xbox 720.

Despite the fact that Microsoft is returning cash to shareholders and buying back a ton of stock, all of the old Microsoft billionaires, and probably now Steve Balmer, will be dumping shares for the rest of their lives.

Tucows (TCX) ran up quite a bit, and I felt like it was time to lock in profits. However, unlike Microsoft, if Tucows pulls back below $10 I would buy it back.

My most recent buy is a stock that I used to own and luckily sold before they went bust: Ambac Financial Group (AMBC). In my opinion, it is a very misunderstood stock.

Buying Ambac is a bet on an economy that is stable to improving. I have no way of knowing for sure, but I believe that the company has excess reserves and is managing their capital very conservatively – which will show up as gains later down the road as they reduce their reserve estimates.

In my opinion, the stock may be undervalued because it is not widely followed and not very well understood. I onced owned this stock because the muni bond insurance market used to be a good business, and when they strayed from that I sold.

Another stock to watch is Teva (TEVA) in my opinion. I have no crystal ball, but I think it’s possible Teva will be bought out or merge with some other company.  With the new CEO in place and some very pushy high profile investors on board, people are starting to look at Teva.

As a final note, I still believe that the stock market is going higher although I can’t find much to buy. Perhaps we will see a pullback soon and some bargains will surface. In the meantime, I will keep my eye out for opportunities – and even though I hold what I consider to be cheap stocks, the opportunity may be in selling certain stocks than buying – at least for now.

DISCLAIMER: The investments discussed are held in client accounts as of February 28, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.

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