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I recently received an interesting text from a client which inquired “In your weekly ‘Two‑Minute‑Tuesday’ video market round-up, you stated that your main intermediate indicator had shifted from ‘Offense’ to ‘Defense.’ Given the election last fall, I’m nervous. Should we just sell everything and go to cash?”

The short answer to that insightful question is “No.”

You see, selling all of your investments and converting to 100 percent cash is an aggressive move. But for me to make this bold move, there would have to be absolutely nowhere to hide and no hope for the any of the six primary asset classes that I follow. In this day and age, it’s the most aggressive move one could ever make. In fact, in my 30 years in the investment business that scenario has only played out once. It was August, 2008 and all of the indicators pointed to an aggressive move to cash.

When you’re switching from an offense to a defense position, the first play in the investment playbook is to simply stop buying. This by itself will improve your returns in a rapidly falling market. When the market returns to offense and the odds are stacked more in your favor, you’ll have more money to put to work.

After that, you should look at all of the investments where you’ve realized gains. You want to consider booking some profits based on those gains. In 2000, 2002 and 2008 so many people did next to nothing with their gains and, subsequently, those oversized gains become supersized losses.

It’s just common sense to periodically take some money off the table. If an investment has moved up 30 percent or so, I may recommend you sell one-third of that investment. When the investment has moved up 50 percent, we’ll consider taking another one-third off. We usually recommend holding the final third to let it run until we see it break down.

So how will you know what else to sell? In our business we turn to the cornerstone of our methodology, which is called Relative Strength.

Any investment that is on a relative strength “buy” signal often goes up faster than the overall market. And any investment that is on a relative strength “sell” signal often goes down faster than the overall market. So any investments on relative strength “sell” signals are gone.

Next in our playbook are investments that have recently posted a series of sell signals on their trend chart. This tells us that supply is in the process of taking charge and pushing prices lower. Since the main thing we want to do is to protect the value of your account, we want to dump stocks where supply is in control.

It’s a basic economic principle: Anything with too much supply will see a price drop.

Incidentally, there are even more plays in our investment playbook that we can take to protect your money, but that’s enough for now. Rest assured, doing nothing and sitting around waiting for the market to rebound is not in the playbook!

In summary, the two takeaways here are to:

• Stop putting money into the market.
• Sell the laggards.

By selling off the laggards we’re raising cash. And that also keeps the strongest names in our account. And when the market returns to offense we’ll have ample power to pick up some bargains.

MANA welcomes your comments on this article. Write to us at [email protected].