Cash Is King (Again)

Will there be a recession in 2025?

Are tariffs going to destroy the economy?

Is this a dip we should buy or the start of a bigger pullback in the market?

There are a lot of unknowns in today’s market and no clear answer about the future from data points like earnings, inflation, and broader economic surveys. Whenever I’m convinced a recession is imminent, another data point shows the opposite.

Cash is again extremely important for companies in this land of uncertainty. Those with flexibility on their balance sheets can not only weather a storm, but they can also position themselves to emerge stronger than ever.

Today, I’m going to dig into why I rated every stock in the Asymmetric Portfolio on their net cash position and free cash flow this week and why cash should be a focus in today’s market.

The market overall had a volatile week and is still down for the year.

The Asymmetric Portfolio is now down 1.9% for the year, but is still beating the market by a small margin. If stocks fall further, I would expect the Asymmetric Portfolio to underperform the market, which will be disappointing short-term but provide an opportunity to load up on great companies long-term.

In Case You Missed It

Here’s some of the content I put out this week.

• Robots Everywhere: Robots are coming, but will this be an unprofitable endeavor like the LLM model business?

• State of the Portfolio, Part 1: A look at the valuation, cash, free cash flow, and growth of every stock in the Asymmetric Portfolio.

• State of the Portfolio, Part 2: Continued.

Why Cash Is King

There’s no question we are headed for uncertain economic times. Tariffs are going up, a trade war seems to be brewing, interest rates are up, and with that backdrop stocks are still trading near all-time highs. Sure, there’s a dip, but this dip in shares barely registers historically.

I can hear myself becoming a curmudgeon, but I’ve been through enough downturns to know that this could get a lot worse. But most of us don’t even remember what a real recession or market panic is like.

For 15 years, investors have been rewarded for taking more risk, betting on bigger visions before cash flow emerges (ahem, Tesla), and overlooking downside.

But we need to consider the worst in any stock. This is why I acknowledge in each spotlight article how a stock could go to zero.

When times get uncertain, how is a company going to respond?

Or a better question: How CAN a company respond? 

A company with a net cash balance has options.

• Pay down debt (if there is any)

• Buy back stock

• Acquire a competitor or adjacent business

• Invest in organic growth

• Hold down the fort and survive

A company with debt and negative free cash flow has far fewer options. They have to think about:

• Surviving to see another day

• Getting to cash flow breakeven

• How to refinance debt that’s soon maturing

• Stock can be used to pay down debt or fund operations, but that’s dilutive to shareholders

Going into a downturn from a position of strength is much more comfortable than going in from a position of weakness.

We need to acknowledge the risks to the downside as investors.

With that in mind, the Asymmetric Portfolio — despite being built to own stocks with 10x potential — is built to get stronger during any market downturn and I’m proud of how the stocks I own look today.

The Asymmetric Portfolio Is Built to Get Stronger

One of the reasons I did a look back at the state of the portfolio this week was that I wanted to know how many of the 21 stocks in the Asymmetric Universe were set up well to survive and thrive during a downturn.

At a high level, I like where these companies sit.

• 16 of 21 companies have a net cash position (ie, no debt or cash exceeds debt)

• 16 of 21 companies generated positive free cash flow in 2024

• 12 of 21 companies grew revenue over 12% Y/Y in 2024

These are growth companies with solid balance sheets in a position to get aggressive if the market goes south.

Some will buy more of their stock.

Some will invest more in the business to thrive when the market recovers.

Some will watch competitors fall by the wayside and pick up the pieces when the market shakes out.

As a portfolio, I’m comfortable with the ability for these companies to survive and ultimately thrive if 2025 gets worse than expected on the market. It was a good exercise to go through and I encourage everyone to do the same so you know where there are opportunities and threats in your portfolio.

Disclaimer: Asymmetric Investing provides analysis and research but DOES NOT provide individual financial advice. Travis Hoium may have a position in some of the stocks mentioned. All content is for informational purposes only. Asymmetric Investing is not a registered investment, legal, or tax advisor or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please do your research before acquiring stocks.