Author Topic: Cash is King  (Read 6292 times)

mrpercentage

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Cash is King
« on: May 18, 2015, 05:24:59 PM »
This was a really good read explaining why its a good idea to always have some cash

http://seekingalpha.com/article/3190326-why-cash-is-king

innerscorecard

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Re: Cash is King
« Reply #1 on: May 18, 2015, 05:48:42 PM »
Depends on one's approach, of course.

forummm

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Re: Cash is King
« Reply #2 on: May 18, 2015, 05:57:36 PM »
I've seen other analyses that say holding even just one year of expenses as cash to use for market timing is a drag on portfolio yield. The drag only increases with the amount of cash held.

nereo

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Re: Cash is King
« Reply #3 on: May 20, 2015, 09:49:59 AM »
This was a really good read explaining why its a good idea to always have some cash

http://seekingalpha.com/article/3190326-why-cash-is-king
Meh.  Biggest problem I see with this is that it assumes I have no more cash coming in at a later date.  Since I spend far less than I earn, I have a cash surplus every month (which gets invested).  I won't keep cash on the sidelines just to hope there's an investment opportunity later - I'll use cash I generate later to buy those opportunities.
Disclaimer: I'm a lazy-assed investor (LAI) who holds index funds because it's the least amount of work for the return.

martin

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Re: Cash is King
« Reply #4 on: May 24, 2015, 10:34:34 AM »
So when do you ever buy?

My imaginary grandfather was lucky and got out just before the 1929 crash, he is still holding onto that $20 waiting for the market to drop below that level again and he will swoop in and buy everything.

forummm

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thedayisbrave

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Re: Cash is King
« Reply #6 on: May 24, 2015, 12:19:12 PM »
Meh.  Biggest problem I see with this is that it assumes I have no more cash coming in at a later date.  Since I spend far less than I earn, I have a cash surplus every month (which gets invested).  I won't keep cash on the sidelines just to hope there's an investment opportunity later - I'll use cash I generate later to buy those opportunities.

I don't generally make it a habit of reading articles on Seeking Alpha.  That said, what nereo describes above is the phenomenon I've come to realize is also true about my situation. 

I enjoy the process of saving and seeing a stash grow.  Knowing that I want to purchase a SFH in the near future, I've been saving toward that goal.  But after examining in depth the cash that comes in every month (which will grow as I add additional sources), I've realized that I can in all likelihood buy 2-3 homes off the excess cash flow in the same period that I thought I'd only be able to stockpile cash for one.  I do still hold a rather large sum in cash given my income fluctuates, but other than that I have decided that any excess cash will be deployed much quicker than originally assumed. 

mrpercentage

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Re: Cash is King
« Reply #7 on: May 24, 2015, 07:06:50 PM »
So when do you ever buy?

My imaginary grandfather was lucky and got out just before the 1929 crash, he is still holding onto that $20 waiting for the market to drop below that level again and he will swoop in and buy everything.

How about a general rule that you buy some when ever the market takes a hit 5% or more? Not all of your stash but some... Then when a really good opportunity comes along-- you will know when you see it-- all in with the rest of your stash. Then rebuild your savings and repeat. Something like that.

Cramer recommends doubling your normal contributions when the market takes a good hit but if you don't have the money you can't do it. Cramer also recommends an index for those Bogle heads out there

martin

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Re: Cash is King
« Reply #8 on: May 24, 2015, 08:46:50 PM »
I think a 10% market hit would be enough to tempt me into leverage.
I would take a $100k out of the house equity to buy some all-US ETFs

waltworks

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Re: Cash is King
« Reply #9 on: May 24, 2015, 09:53:18 PM »
This has been extensively studied, and it doesn't work (ie, buying when the market drops X%) There is zero controversy about that.

-W

mrpercentage

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Re: Cash is King
« Reply #10 on: May 25, 2015, 08:56:39 AM »
Timing has worked well for me so I'm a hieratic. You can't buy a good deal if you don't  have the cash

Retire-Canada

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Re: Cash is King
« Reply #11 on: May 25, 2015, 09:32:16 AM »
Timing has worked well for me so I'm a hieratic. You can't buy a good deal if you don't  have the cash

What is a hieratic? Is that a new investment term for folks that are into market timing?

On the second point you don't need to hold cash to buy "a good deal":

1. if you have a high savings rate you can divert a substantial amount of $$ at a specific investment opportunity on short notice. If you need to move fast you can buy on margin and pay it off in a week or two when you are paid.

2. if you have a diversified portfolio you can sell other investments and buy what you feel is a good deal as you rebalance towards your target asset allocation. In tax sheltered accounts there won't be any capital gains to deal with.

-- Vik

forummm

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Re: Cash is King
« Reply #12 on: May 25, 2015, 09:44:37 AM »
I think a 10% market hit would be enough to tempt me into leverage.
I would take a $100k out of the house equity to buy some all-US ETFs

How much leverage are we talking? Often a 10% market hit is followed by further declines.

Jon_Snow

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Re: Cash is King
« Reply #13 on: May 25, 2015, 09:55:43 AM »
Ample cash on hand (I like to keep 50k handy) is a pillar of my personal investing strategy. It has enabled me to act quickly when great companies have been unfairly punished by the knee-jerk whims of the market. Bought a large position in a big Canadian telco when rumours of American entry in the market surfaced (didn't happen). There are many other instances of this - a type of "market timing" I suppose...but this has served my successful FIRE very well, though long term holding of high quality dividend payers is the dominant feature of my personal investing "mantra".