Naming Names and Dumping Stocks

You’ve got to know when to hold ’em

Know when to fold ‘em

Know when to walk away

Know when to run

Kenny Rogers

In the past few weeks a number of prestigious banks and brokerages including UBS, JP Morgan Chase, the Royal Bank of Scotland and Société Générale have been urging their clients to sell the stocks in their portfolios. Credit Suisse has now joined their ranks.  But the noted Swiss financial services company has issued an even more pointed financial alert.

Lori Calvasina, Credit Suisse’s chief U.S. equity strategist, has issued a report in which she actually names specific stocks investors need to dump to keep their portfolios secure.  Startlingly, her list doesn’t just include recent upstarts like high-profile tech companies or innovative but unproven pharmaceutical manufacturers, but names we all thought were synonymous with quality and reliability.

Calvasina’s list consists of some of the most successful companies on U.S. stock exchanges – names like Microsoft, Apple, Johnson & Johnson, Cisco Systems and Visa.  She refers to these companies as the “darlings” of the investment community.

After examining 1,475 mutual funds and ETFs, Calvasina’s reasoning is that these are the twenty-five stocks fund managers are most likely to sell when their investors start jumping ship during market tumbles.  Since the largest proportion of shares of virtually any publicly traded stock is held by funds, the sheer volume means any selloff by fund managers can cause precipitous slides in stock prices.

The hard fact is, there is no stock that can protect your portfolio.  That’s not what stocks are for; they’re for growth, and that carries risk.  The question is how do you mitigate that risk, and shelter that portion of your savings you simply can’t afford to lose?

In fact Calvasina’s take may almost come as a relief.  Since even the most tried-and-true stocks you own could become liabilities in an instant, it may make it less wrenching to sacrifice them to the greater good of your portfolio—and put those gains to work protecting your retirement with tangible assets.  The bottom line is this: Microsoft isn’t your darling; your safe retirement and the security of your family is.

Hard assets such as real estate and physical precious metals have intrinsic value that can’t be wiped out.  Even in the depths of the recession you didn’t see people handing out free buildings and gold coins.

The particular virtue of gold is that it represents both portable wealth and a stable, reliable component of your retirement portfolio.  It’s not subject to banking systems predicated on paper money and it’s inversely correlated to the market.  So when you buy low you essentially buy a discounted seat to the show when other investors finally catch wise and start to frantically dump their stocks in search of that safe haven you’ve already found – and driving up the price in the process.  That’s because for centuries gold has been the primary refuge investors fly to when markets slide out of control.