How much cash do you have?

[no_free_lunch]

I don't do well with bull markets and I am holding more and more cash these days.  I usually run 20%, dropped down to 15% during the december crash but I back up to around 25%.  Just curious where others are at.

 

Also curious what people use for cash alternatives.  In Canada I mainly use xfr.to.

[Guest cherzeca]

this question should not be understood as a bull v bear market test but rather where you are in your investing life cycle (age/objectives etc) imo

[wabuffo]

Another important factor is the size of your grubstake.  If its small and you are relatively young, there's an argument to be made that you should be fully invested at all times.

 

wabuffo

[no_free_lunch]

I agree with both of you.  So many variables.

 

In my case I am far enough along that my "stake" is not really replacable and close enough to my retirement amount that it's not worth reaching.

 

I am making the assumption that most people here are fairly far along with their portfolio.

 

Take this survey with a grain of salt, just one data point.

[MarioP]

You forgot <0. I’m retired  and usually have a 10% on margin . I know it is <10% but i think it is a different answer.

[Foreign Tuffett]

I just emptied my pockets. I have exactly $37.53

[fareastwarriors]

I use margin. negative cash

[shhughes1116]

Right now I am at 15% cash, compared to -15% cash (i.e. on margin) in early January.

 

 

I find that I am pretty poor at timing the market, so I try to stay pretty close to fully-invested, while not using margin.  The last 12 months have been a bit of an exception for me, in both directions.   

[obtuse_investor]

I voted. Although, I am more interested in the second question by OP.

 

Best ways to park cash in Canada. Thanks for suggesting XFR.TO. I didn't know about that. I wonder what the tax and risk profile is compared to a money market fund. Something, I'll have to look into.

 

I have been using Money Market fund from my brokerage's parent bank (TD, in my case). All other large banks have that offering. Although I am quite interested to see the large banks off "Investment Savings Account": See https://www.td.com/ca/en/asset-management/additional-solutions/ as example.  The interest rate is higher than their own CAD money market fund.

 

Any other ideas that Canadians have for having a ready place to park case. Ready, being available within 24-48 hours.

[Gregmal]

about -35%

[no_free_lunch]

I voted. Although, I am more interested in the second question by OP.

 

Best ways to park cash in Canada. Thanks for suggesting XFR.TO. I didn't know about that. I wonder what the tax and risk profile is compared to a money market fund. Something, I'll have to look into.

 

I have been using Money Market fund from my brokerage's parent bank (TD, in my case). All other large banks have that offering. Although I am quite interested to see the large banks off "Investment Savings Account": See https://www.td.com/ca/en/asset-management/additional-solutions/ as example.  The interest rate is higher than their own CAD money market fund.

 

Any other ideas that Canadians have for having a ready place to park case. Ready, being available within 24-48 hours.

 

I don't know about taxes as I hold it in tax free accounts.

 

It's about 70% CMHC bonds, 20 provincial binds, 10 bank bonds. The cmhc is backed by the government of Canada.  Probably more risk than money markets.

[LC]

About 10% right now. Am thinking of raising up to about 20-25%. Looks like a slowdown is coming.

[kab60]

My spouse took out equity in her flat to match my investments, so a couple of weeks ago I was around 40 pct. cash after being around -20 pct. Now I'm (we're) at 0% cash after adding to most positions and taking a 20 pct. position in Berkshire friday. I last bought it in January 2016 (and sold for a quick gain). I'm 33, we save a lot, so I'm not gonna waste time trying to time this or that. I still don't understand why so many smart people (if their time horizon is long) prefer cash earning 0 when one can buy decent/good/great businesses at +10 pct. FCF yields, but obviously there's a lot of variables involved (if one can live the sweet life off the existing portfolio, there might be no reason to risk something you need for something that woudn't improve quality of life).

 

Portfolio is around 10-12 years of savings, but it wouldn't change anything whatsoever in our daily life if there was a big drawdow. Having only invested in a bull market (since early 2015) I'm somewhat aware that I haven't really been tested yet, so while I think the above sounds rational, I hope I can stick to that framework instead of choking and selling at the bottom to buy gold and canned food when the next bear market hits. We'll see. :o

[KJP]

I still don't understand why so many people (if their time horizon is long) prefer cash earning 0 when one can buy decent/good/great businesses at +10 pct. FCF yields, but obviously there's a lot of variables involved (if one can live the sweet life off the existing portfolio, there might be no reason to risk something you need for something that woudn't improve quality of life).

 

I keep what is (for me) a large amount of cash because the earnings from my labor are very lumpy, infrequent and uncertain, so a large amount of cash prevents me from ever having to sell for liquidity, rather than fundamental reasons.  For similar reasons, if I have X assets today, having .25X in assets next year would have a much greater effect on my life than having 1.75X in assets next year.  I also have a limited amount of time to devote to investing, so I'm not particularly nimble with buying and selling and do not expect to sell before any large market decline.

 

I'm also not aware of many great businesses currently selling at greater than 10% FCF yields that aren't levered up to their eyeballs, but I also look almost exclusively at US companies.  Can you name 5 or 10?

[LC]

At about 5-10% but just temporary, I usually try to be fully invested.

 

The point here is market timing : you think the market is going to drop (i.e. a recession is coming) and you want to move to cash.

 

I would say, unless you have positions which you think are over-valued and want to trim, it may be more prudent to buy general market protection (SP puts).

[John Hjorth]

... I'm 33, we save a lot, so I'm not gonna waste time trying to time this or that. I still don't understand why so many smart people (if their time horizon is long) prefer cash earning 0 when one can buy decent/good/great businesses at +10 pct. FCF yields, but obviously there's a lot of variables involved (if one can live the sweet life off the existing portfolio, there might be no reason to risk something you need for something that woudn't improve quality of life). ...

 

kab60,

 

I'll just say, that your line of thinking based on your description of your household makes perfectly sense to me. Holding cash or the opposite [use of leverage] is a personal question, to which each has to make up their own mind, based on personal situation & risk appetite [or the opposite].

[Jurgis]

it may be more prudent to buy general market protection (SP puts).

 

This conclusion is not straightforward and depends (among other things) on your portfolio performance vs SP during the put position, cost, sizing, and scenarios considered.

While cost, sizing, and scenarios is mostly math, I'd say the expectation that your portfolio will outperform SP during the put position is of (most) concern. Isn't that how Fairfax (among others) screwed up their returns? A lot of people don't outperform SP. Even more don't outperform SP during relatively short time periods that put holding would imply.

[HalfMeasure]

this question should not be understood as a bull v bear market test but rather where you are in your investing life cycle (age/objectives etc) imo

 

Great point - my cash balance is high however the primary drivers aren't necessarily a call on market valuation but rather i) the fact a large portion of the money was saved recently and ii) some is earmarked in case we want to buy a property at some point in the next few years. Earlier in your investing life cycle, a large % also isn't a large absolute $ amount. >50% cash at a <$25,000 net worth would seem to me to be responsible, but >50% cash at a $10M+ net worth might not be unless there was a specific reason.

[Guest cherzeca]

"but >50% cash at a $10M+ net worth might not be unless there was a specific reason."

 

such as being retired, never wanting to work again and hoping that one will have a need for money for another 30 years.  btw, one can find "cash" that yields 2% these days

[kab60]

I still don't understand why so many people (if their time horizon is long) prefer cash earning 0 when one can buy decent/good/great businesses at +10 pct. FCF yields, but obviously there's a lot of variables involved (if one can live the sweet life off the existing portfolio, there might be no reason to risk something you need for something that woudn't improve quality of life).

 

I keep what is (for me) a large amount of cash because the earnings from my labor are very lumpy, infrequent and uncertain, so a large amount of cash prevents me from ever having to sell for liquidity, rather than fundamental reasons.  For similar reasons, if I have X assets today, having .25X in assets next year would have a much greater effect on my life than having 1.75X in assets next year.  I also have a limited amount of time to devote to investing, so I'm not particularly nimble with buying and selling and do not expect to sell before any large market decline.

 

I'm also not aware of many great businesses currently selling at greater than 10% FCF yields that aren't levered up to their eyeballs, but I also look almost exclusively at US companies.  Can you name 5 or 10?

I don't wanna sidetrack this, but you recently had a bunch of UK car dealers - Vertu and Motorpoint - which I'd rate at decent/great respectively - trading at some very solid FCF yield despite a tough environment. After the current runup I prefer Cambria which I'd also argue is good+ and VERY cheap. Last month you had MO around 10 pct. yield. ULTA is only 5 pct, but then analysts expect 10 pct. EPS growth. My favorite is Linamar though. 2/3 endmarkets are in the gutter, so you get to buy a good/great industrial busines below book value led by management with a crazy good track record AND around a 18 pct. FCF yield despite a tough backdrop.

 

Or if you don't mind leverage and serial M&A there's Berry at some +15 pct. FCF yield.

 

One can definately argue some of these have warts, but I've never found as many compelling setups than during 2019. I've only invested since 2015, so I might definately be the bagholder here, but even Berkshire looks cheap. And has looked cheap all year. With a multiyear horizon I really don't see how one loses when we get around 1,3xbook.

[no_free_lunch]

This is great Kab.  Thanks for posting.

 

I came so close to LNR back when it was below $40 but just didn't pull the trigger.  It is still cheap on FCF basis but it's hard having seen the run-up.  Maybe I will have another look.

 

Already own MO and MOTR.

 

I will have a look at ULTA.  It doesn't seem cheap at all but I will do some digging.

[kab60]

This is great Kab.  Thanks for posting.

 

I came so close to LNR back when it was below $40 but just didn't pull the trigger.  It is still cheap on FCF basis but it's hard having seen the run-up.  Maybe I will have another look.

 

Already own MO and MOTR.

 

I will have a look at ULTA.  It doesn't seem cheap at all but I will do some digging.

Ulta isn't at all cheap like the others, but here you might be getting a GREAT business at a very good price if what they experience is temporary. I took my bet, but I'd say the range of outcomes is bigger, because it will get slaughtered if problems are secular rather than cyclical.

 

I'm finally in the green on Linamar today. Bought at 52, doubled at 37 and bought more on the recent dip to 35 (30 pct. position at one time). I hate anchor bias and it effects me all the time, but like with Berkshire you've got BV compounding, so you get $8 of BV a year. So arguably not a lot more expensive even though the price has gone up.

 

Won't post anymore about the positions here, sorry about the offtopic.

[KJP]

I still don't understand why so many people (if their time horizon is long) prefer cash earning 0 when one can buy decent/good/great businesses at +10 pct. FCF yields, but obviously there's a lot of variables involved (if one can live the sweet life off the existing portfolio, there might be no reason to risk something you need for something that woudn't improve quality of life).

 

I keep what is (for me) a large amount of cash because the earnings from my labor are very lumpy, infrequent and uncertain, so a large amount of cash prevents me from ever having to sell for liquidity, rather than fundamental reasons.  For similar reasons, if I have X assets today, having .25X in assets next year would have a much greater effect on my life than having 1.75X in assets next year.  I also have a limited amount of time to devote to investing, so I'm not particularly nimble with buying and selling and do not expect to sell before any large market decline.

 

I'm also not aware of many great businesses currently selling at greater than 10% FCF yields that aren't levered up to their eyeballs, but I also look almost exclusively at US companies.  Can you name 5 or 10?

I don't wanna sidetrack this, but you recently had a bunch of UK car dealers - Vertu and Motorpoint - which I'd rate at decent/great respectively - trading at some very solid FCF yield despite a tough environment. After the current runup I prefer Cambria which I'd also argue is good+ and VERY cheap. Last month you had MO around 10 pct. yield. ULTA is only 5 pct, but then analysts expect 10 pct. EPS growth. My favorite is Linamar though. 2/3 endmarkets are in the gutter, so you get to buy a good/great industrial busines below book value led by management with a crazy good track record AND around a 18 pct. FCF yield despite a tough backdrop.

 

Or if you don't mind leverage and serial M&A there's Berry at some +15 pct. FCF yield.

 

One can definately argue some of these have warts, but I've never found as many compelling setups than during 2019. I've only invested since 2015, so I might definately be the bagholder here, but even Berkshire looks cheap. And has looked cheap all year. With a multiyear horizon I really don't see how one loses when we get around 1,3xbook.

 

Thanks for following up with specific names.  It helps understand what you mean by quality, which varies person to person.

[TwoCitiesCapital]

Only about 5% in true money market, but I have other positions that I view has having similar optionality as hedges

 

10% in short-term bonds funds

5% in intermediate treasuries

3% in leveraged mortgages (a la NLY)

And 0.5% in index out options

 

Also moved 15% out of equities and into IG corporates. Not a true hedge, but probably less volatile to the downside than equities will be.