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What do you do with cash while you wait?


dabuff
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I most my cash in a similar account.

 

In general I think you can't go far wrong letting your cash being as liquid as possible. This isn't where you will have a big edge, but the decision to hold cash might be.

 

For the patience part I feel it helps to have yield. Therefore I've bought a stake in SAS preferred shares yielding about 10%. Time will tell if it's better or not:) I like that the cash flow looks very safe atm and that there is a high incentive in the terms to repurchase these in 2017 which should make them less sensitive to any rate hikes.

 

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I saw KCLI go from 52.5 to 36, it was selling at 1/2 book. So I bought a whole bunch with money designated for cash. I believe (hope) that the stock can't go any lower. If market goes south I can sell it to raise cash.

 

Wonder if anyone has done something like that?

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Well, first off, why do we hold cash?  Unless you are in the withdrawal phase of your investing life-cycle, I would argue that we hold cash because we are awaiting market opportunities to deploy it in an interesting investment.  I'd say that there are two broad situations where market opportunities might appear:

 

1) A security (or perhaps a collection of securities) fall in price and become attractive; or

2) A general market displacement occurs which drags down the price of most (all?) securities.

 

 

Most of my investing career I have been snooping around looking for opportunities from cause #1, but on a couple of occasions (the tech wreck and the financial crisis) I exploited opportunities from cause #2.

 

If you want to exploit only opportunities in cause #1, you can keep your cash in pretty much any security and you won't run into trouble.  But if you think that cause #2 is possible/imminent, then you need to avoid any risky security, all money market funds, and all commercial paper.  What we learned in 2008 is that during a financial crisis, prices of risky securities can decline for no reason, money market funds prohibit withdrawals, and that you might not be able to convert commercial paper to cash.

 

So, I say if you are planning to keep cash around to deploy it opportunistically, you should be looking for two characteristics:

 

1) LIQUID

2) SOVEREIGN GUARANTEE

 

 

An insured savings account or T-bills fulfil these exigencies nicely. Reaching for yield can finish badly.

 

 

SJ

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i-bonds (liquid after 1 year).

 

they are more for "long term" cash though in that you can't easily reduce/add to the position.

 

i use it as my no risk fixed income allocation, my emergency fund, my "maybe one day I'll want to own a house and need a downpayment fund", my "oh shit interactive brokers just went under and that's where all my assets are" fund, etc.

 

probably not what you were looking for but whenever these threads come up, I pimp the i-bonds because a 0% real return tax deferred with no credit risk, market risk, or duration risk is sexy as hell. they are also great for enlivening cocktail party conversation.

 

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https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm

 

The composite rate for I bonds issued November 1, 2015 April 30, 2016, is 1.64%

 

the yield depends on inflation. the interest rate is a composite of a fixed coupon and inflation, but the fixed coupon is basically zero. this cool cat says you should buy your i-bonds later because the fixed coup may go up.

 

http://seekingalpha.com/article/3799726-buying-bonds-2016-one-word-advice-wait

 

they can't go down in value but they can go to 0% coupon if inflation is negative.

 

here's what an i-bonds position built over time looks like in real life. i envy those who were buying with fixed coupons of like 3% back in the day. hope that helps, i'm off to play some bingo and get a colonoscopy

 

Issue Date Interest Rate Status Amount       Current Value

01-01-2016 1.64% $5,000.00 $5,000.00

01-01-2016 1.64% $5,000.00 $5,000.00

03-01-2015 0.00% $5,000.00 $5,038.00

01-01-2015 1.54% $5,000.00 $5,038.00

01-01-2014 1.74% $10,000.00 $10,256.00

05-01-2013 1.54% $10,000.00 $10,288.00

05-01-2012 1.54% $5,000.00 $5,246.00

05-01-2012 1.54% $5,000.00 $5,246.00

Totals:                           $50,000.00      $51,112.00

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Great quote from Tepper last summer on cash -

 

"I'm not short, because I'm nervous about the liquidity.  The market can go up, so that's why I have this cash, which is a great hedge.  I'll tell you this: it's the best hedge; nothing else is as great a hedge.  You can learn anything you want at Carnegie Mellon, I'm telling you right now, you can't hedge yourself like being only cash at a time."

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https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm

 

The composite rate for I bonds issued November 1, 2015 April 30, 2016, is 1.64%

 

the yield depends on inflation. the interest rate is a composite of a fixed coupon and inflation, but the fixed coupon is basically zero. this cool cat says you should buy your i-bonds later because the fixed coup may go up.

 

http://seekingalpha.com/article/3799726-buying-bonds-2016-one-word-advice-wait

 

they can't go down in value but they can go to 0% coupon if inflation is negative.

 

here's what an i-bonds position built over time looks like in real life. i envy those who were buying with fixed coupons of like 3% back in the day. hope that helps, i'm off to play some bingo and get a colonoscopy

 

Issue Date Interest Rate Status Amount       Current Value

01-01-2016 1.64% $5,000.00 $5,000.00

01-01-2016 1.64% $5,000.00 $5,000.00

03-01-2015 0.00% $5,000.00 $5,038.00

01-01-2015 1.54% $5,000.00 $5,038.00

01-01-2014 1.74% $10,000.00 $10,256.00

05-01-2013 1.54% $10,000.00 $10,288.00

05-01-2012 1.54% $5,000.00 $5,246.00

05-01-2012 1.54% $5,000.00 $5,246.00

Totals:                           $50,000.00      $51,112.00

 

Thanks the pupil. It's a small liquidity sacrifice though, no?

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https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm

 

The composite rate for I bonds issued November 1, 2015 April 30, 2016, is 1.64%

 

the yield depends on inflation. the interest rate is a composite of a fixed coupon and inflation, but the fixed coupon is basically zero. this cool cat says you should buy your i-bonds later because the fixed coup may go up.

 

http://seekingalpha.com/article/3799726-buying-bonds-2016-one-word-advice-wait

 

they can't go down in value but they can go to 0% coupon if inflation is negative.

 

here's what an i-bonds position built over time looks like in real life. i envy those who were buying with fixed coupons of like 3% back in the day. hope that helps, i'm off to play some bingo and get a colonoscopy

 

Issue Date Interest Rate Status Amount       Current Value

01-01-2016 1.64% $5,000.00 $5,000.00

01-01-2016 1.64% $5,000.00 $5,000.00

03-01-2015 0.00% $5,000.00 $5,038.00

01-01-2015 1.54% $5,000.00 $5,038.00

01-01-2014 1.74% $10,000.00 $10,256.00

05-01-2013 1.54% $10,000.00 $10,288.00

05-01-2012 1.54% $5,000.00 $5,246.00

05-01-2012 1.54% $5,000.00 $5,246.00

Totals:                           $50,000.00      $51,112.00

 

Thanks the pupil. It's a small liquidity sacrifice though, no?

 

yes, it is a small liquidity sacrifice for the first year and like i said, it's not really to be used for cash that you'll move around a lot so it may not suit your purpose

 

Year 0-1: not liquid

Year 1-5: liquid, forfeit 3 months' interest (the amount shown in your account and above is net of this penalty)

Year 5-30: liquid with no penalty

Year 30: you must redeem

 

federally taxable at ordinary rates upon redemption unless used to make qualifying educational expenses if bondholder falls under a a certain income limit; not subject to state tax.

 

 

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We use Tangerine here in Canada. Getting 2.4% on a "high interest" savings account. Usually have to complain after the grace period is up to get them to extend the rate, but they always say yes. EQ Bank (part of Equitable Group, a subprime mortgage lender that trades on the TSX) is offering 3% as a promo.

 

Both are guaranteed by the government up to $100k. I'm not a big enough baller to get above that.

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Always an option:

 

http://45.media.tumblr.com/582ac648525bb1a49c5b62526a60875b/tumblr_nzbt19UjjB1rrrncdo1_250.gif

 

I totally tried to respond with the GIF with peter griffin from family guy trying to dive into coins like scrooge mcduck, but I failed miserably.  I am getting old. 

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