What do you do with cash while you wait?

[fareastwarriors]

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.

 

Pupil, are you doing paper ibonds with tax refund as well? Do you convert those to online or do keep it in a safe or safety deposit box at bank?

[thepupil]

never received a refund before (realized investment gains), and am full on these anyways...

 

the cost of my strategy (which was to replicate long equity exposure with LEAP's and use the cash saved to max out i-bonds so that i can build a nice i-bond position) is increasing with higher implied vol in options. for example let's say i wanted to buy me some of that berkaberk, I could buy $10K i-bonds and a $100 Jan 18 call for $36. paying about $9 of premium over 2 years (that's like borrowing at 4% a year). When I did this a few times before it was closer to 1.5-2%, so I could buy the i-bond and the berkshire LEAP and my expected 2% inflation yield would pay for my premium so i'd get a free put and free inflation optionality and start to build a material portfolio of i-bonds. this is not as attractive today (one could still use margin though).

 

probably more than you wanted to know. most people would just fully fund the purchase of 100 shares of berkshire with cash and be done with it.

[original mungerville]

Personally, I think the smartest way to handle your cash position is to put 85% in local currency and 5% gold, 5% gold miners and 5% silver; or 90% cash and 3.3% in each of those three. And don't rush to reinvest into equities until you see an absolute steal of a deal.

 

[dabuff]

Personally, I think the smartest way to handle your cash position is to put 85% in local currency and 5% gold, 5% gold miners and 5% silver; or 90% cash and 3.3% in each of those three. And don't rush to reinvest into equities until you see an absolute steal of a deal.

 

sounds almost like Nassim Taleb's barbell portfolio - without the risky side of the barbell.

[Palantir]

[wachtwoord]

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.

 

http://i.imgur.com/ztZ0yAZ.gif

[John Hjorth]

This topic makes absolutely no sense to me. Why aren't people buying the heck out of their best ideas these days?

[TwoCitiesCapital]

This topic makes absolutely no sense to me. Why aren't people buying the heck out of their best ideas these days?

 

I've got two possibilities:

 

1) The bulls already bought the heck out of them before individual names fell 20, 30, or even 40% or

2) The bears don't think that a 10% decline in the overall market signals a screaming buying opportunity

 

I covered some of my higher beta shorts. I added a small amount to FCAU, SAN, and ATUSF.

 

Other than that, I've remained about the same because a 10% move either way in the SPY really doesn't mean much to me in terms of trying to take advantage of the swing of fear/exuberance. It's the 25+% swings I try to take advantage of.

[CorpRaider]

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.

 

http://i.imgur.com/ztZ0yAZ.gif

 

Thank you sir.  Could you drive me to my doctor's appointment?

[blainehodder]

This topic makes absolutely no sense to me. Why aren't people buying the heck out of their best ideas these days?

 

I've got two possibilities:

 

1) The bulls already bought the heck out of them before individual names fell 20, 30, or even 40% or

2) The bears don't think that a 10% decline in the overall market signals a screaming buying opportunity

 

I covered some of my higher beta shorts. I added a small amount to FCAU, SAN, and ATUSF.

 

Other than that, I've remained about the same because a 10% move either way in the SPY really doesn't mean much to me in terms of trying to take advantage of the swing of fear/exuberance. It's the 25+% swings I try to take advantage of.

 

minor nitpick - the 10% move in SPY understates the decline of the average stock significantly. There have been 25% declines in many (most?) listed US stocks, and definitely in European and EM stocks. That said, if you don't see bargains, you don't see bargains.

[bbarberayr]

You could look at some merger/arb opportunities to generate relatively safe income:

 

http://www.mergerinvesting.com/pendingmergers

[wachtwoord]

This topic makes absolutely no sense to me. Why aren't people buying the heck out of their best ideas these days?

 

I'm 110% invested and I'm a person who doesn't like leverage. I can't really buy more.

[scorpioncapital]

You could look at some merger/arb opportunities to generate relatively safe income:

 

http://www.mergerinvesting.com/pendingmergers

 

Second this. A very good use for cash equivalents. But keep it simple and careful which you choose to go for. You don't have to have your hands in everything - or diversifty and try to put some thought to the deals you go for. This should result in a very good spread over cash interest and relatively safe.

[John Hjorth]

... That said, if you don't see bargains, you don't see bargains.

 

blainehodder,

 

Fair enough statement here from you. Certainly it depends on personal investment style, and also work process. I'm just not a macro guy, and perhaps the topic title to me indicated - at least indirectly - possible efforts of market timing. If I have stepped on the toes af any posters in this topic, I hereby apologize.

[james22]

I see bargains, sure.

 

But I'm market timing (http://www.arborinvestmentplanner.com/market-timing-valuation-timing/).

 

As the bargains will likely fall with the market in any significant correction, I'll hope to buy them then.

[Uccmal]

This topic makes absolutely no sense to me. Why aren't people buying the heck out of their best ideas these days?

 

I'm 110% invested and I'm a person who doesn't like leverage. I can't really buy more.

 

Makes no sense to me, either.  I have been greater than 100% invested continuously since 1997, including going into fall 2008.  I just took advantage of the extreme low prices at the time to move up the quality curve. 

 

I have been doing the same in our bear market here in Canada.  Moving into stocks that have increased their dividends year after year.  Markets aren't displaced enough to be trying for home runs. 

[BG2008]

This topic makes absolutely no sense to me. Why aren't people buying the heck out of their best ideas these days?

 

I think the answer is that the opportunity set isn't "shooting fish in a barrel" yet.  I've always hold cash.  A lot that has traded down have hairs on them.  The genuinely good businesses have held up pretty well so far. 

[dabuff]

This topic makes absolutely no sense to me. Why aren't people buying the heck out of their best ideas these days?

 

I think the answer is that the opportunity set isn't "shooting fish in a barrel" yet.  I've always hold cash.  A lot that has traded down have hairs on them.  The genuinely good businesses have held up pretty well so far.

 

Agreed - there may be some blood in the streets today, but what if there's a bloodbath tomorrow?

[dabuff]

When Seth Klarman was once asked how he was able to maintain outsized returns despite such a large cash position in his portfolio, he explained that it was precisely because of his cash position that he was able to outperform.

[John Hjorth]

When Seth Klarman was once asked how he was able to maintain outsized returns despite such a large cash position in his portfolio, he explained that it was precisely because of his cash position that he was able to outperform.

 

dabuff,

 

Do you have a source for that statement?

[Investmentacct]

This topic makes absolutely no sense to me. Why aren't people buying the heck out of their best ideas these days?

 

I'm 110% invested and I'm a person who doesn't like leverage. I can't really buy more.

 

Makes no sense to me, either.  I have been greater than 100% invested continuously since 1997, including going into fall 2008.  I just took advantage of the extreme low prices at the time to move up the quality curve. 

 

I have been doing the same in our bear market here in Canada.  Moving into stocks that have increased their dividends year after year.  Markets aren't displaced enough to be trying for home runs.

 

AL, when you said trying to move up quality curve. I remember you were exchanging sbux and other quality in 2008 when things were going down. Do you see in terms of overall portfolio earning power and with every move you try to increase it over time?

[dabuff]

http://www.businessinsider.com/brian-spector-leaving-baupost-letter-2015-11

My mistake - it was Brian Spector (Baupost partner) in a quarterly letter but the point still stands:

 

"One of the most common misconceptions regarding Baupost is that most outsiders think we have generated good risk-adjusted returns despite holding cash. Most insiders, on the other hand, believe we have generated those returns BECAUSE of that cash. Without that cash, it would be impossible to deploy capital when we enter a tide market and great opportunities become widespread. Seth has said on a number of occasions in both types of markets, 'If you have great ideas, you will have capital to deploy.' This is incredibly motivating to our investment team."

 

[Uccmal]

This topic makes absolutely no sense to me. Why aren't people buying the heck out of their best ideas these days?

 

I'm 110% invested and I'm a person who doesn't like leverage. I can't really buy more.

 

Makes no sense to me, either.  I have been greater than 100% invested continuously since 1997, including going into fall 2008.  I just took advantage of the extreme low prices at the time to move up the quality curve. 

 

I have been doing the same in our bear market here in Canada.  Moving into stocks that have increased their dividends year after year.  Markets aren't displaced enough to be trying for home runs.

 

AL, when you said trying to move up quality curve. I remember you were exchanging sbux and other quality in 2008 when things were going down. Do you see in terms of overall portfolio earning power and with every move you try to increase it over time?

 

I'd like to say yes, but no.  I had bought Leaps on Sbux, Ge, hd, axp, ffh, and a couple of others I cant recall right now, in spring 2009.  Unfortunately, I didn't stick with anything I had bought.  Sbux is up 6x, ge 3x plus dividends, hd 6x, axp 5x.  I sold them all, probably because of the uncertainty at the time, to invest in much more certain things such as bbry, fbk, pwt, and so on :-).  It hasn't all been bad - BAC and jpm and wells fargo were good off their bottoms, but the blowups have put quite a dent in my returns. 

 

I think I am just drinking the koolaid of compound interest, now.  I have geen picking up dividend growers for the last year, such as Brookfield renewable, First National, Bell Canada, Enbridge, and so on - see my signature.  I try to get them at 52 week lows. 

 

Part of the reason is that I had a good look at my kid's RESP where I hold several blue chip type companies.  Most of them have doubled in 7-8 years while spinning off 4.5% growing dividends along the way.  I have always been more conservative with this account, virtually never selling anything.  Its instructive that it has grown with none of the blowups, and gyrations I have had in other accounts.