Anyone else sitting on a lot of cash?

[throw123]

11 pct cash - not intentional, I like to keep far less

[Castanza]

One thing I’ve noticed about myself over the past five years is this. The more cash I hold the more likely I am to enter trading positions. The less cash I have the more likely I am to add to long term positions. I’ve performed better with less cash on hand. Not sure what the underlying psychology is but it seems similar to burning a hole in your pocket. Assuming some others are similar on here and I would also assume that overtime this changes as you mature from an investment mindset. 

[Spekulatius]

I have actually seen things get nasty after the first rate cut more often than not. A rate cut isn’t necessarily bullish for equities in isolation.

 

The “burning  hole in the pocket - just swing you bum” inclination is very real. Not everyone has the patience that Buffett has.

[Luca]

0 Cash, fully invested. Can still find decent ideas in the market. 

[changegonnacome]

30 minutes ago, Spekulatius said:

I have actually seen things get nasty after the first rate cut more often than not. A rate cut isn’t necessarily bullish for equities in isolation.

 

Yep thats what the book says.....equities tend to bottom some time after the first rate cut but not before......and rarely the bottom is in after the first rate cut.....its first cut plus some time more cuts before things bottom out.

[Guest]

Supposedly, the most Buffett has ever held in cash was 20% if memory serves. 

[Gregmal]

34 minutes ago, stahleyp said:

Supposedly, the most Buffett has ever held in cash was 20% if memory serves. 

Buffett runs a business. He’s always used leverage to produce returns. Margin before Berkshire and after he’s found ways to use the business to enhance his investing. 
 

The idea of having cash amongst investors really just comes down to your ability to find good investments. It’s not exactly indicative of anything else. Seth Klarman has held huge amounts of cash for a decade. Is that because there just haven’t been good opportunities the last decade? Lol There’s always opportunity for those willing to work hard and look for it. 

[brobro777]

1 hour ago, Spekulatius said:

I have actually seen things get nasty after the first rate cut more often than not. A rate cut isn’t necessarily bullish for equities in isolation.

 

The “burning  hole in the pocket - just swing you bum” inclination is very real. Not everyone has the patience that Buffett has.

 

I remember the surprise interest rate cut from Greenspan in Jan 2001! 

 

 

[Gmthebeau]

About 60% in t-bills and some bonds.

 

“It takes character to sit there with all that cash and do nothing. I didn’t get to where I am by going after mediocre opportunities.” Charlie Munger

[Luca]

1 hour ago, Gregmal said:

Seth Klarman has held huge amounts of cash for a decade. Is that because there just haven’t been good opportunities the last decade? Lol There’s always opportunity for those willing to work hard and look for it. 

It's funny how they still manage to market them holding cash as something "wise" or smart. Opportunities every single year but thats hard to admit. 

 

Its always possible to use the punch card buffett argument and to delay the "one huge swing". Returns are around the corner!

Edited July 9, 2023 by Luca

[Guest]

1 hour ago, Gregmal said:

Buffett runs a business. He’s always used leverage to produce returns. Margin before Berkshire and after he’s found ways to use the business to enhance his investing. 
 

The idea of having cash amongst investors really just comes down to your ability to find good investments. It’s not exactly indicative of anything else. Seth Klarman has held huge amounts of cash for a decade. Is that because there just haven’t been good opportunities the last decade? Lol There’s always opportunity for those willing to work hard and look for it. 

 

 

Just now, Luca said:

It's funny how they still manage to market them holding cash as something "wise" or smart. Opportunities every single year but thats hard to admit. 

 

 

He has a book that is so awesome that it goes for $1,700 on ebay. Should go for at least $5 million. Perhaps $100 million for a copy. Might be the best book ever written (on any topic). One the best insights of this brilliant mind is that index investing is a fad. He was also early on the bear market that we've been experiencing for the past 10 years...he turned bearish in 2010, I believe. Just early. That's all. 

[Sweet]

11 minutes ago, stahleyp said:

 

 

 

 

He has a book that is so awesome that it goes for $1,700 on ebay. Should go for at least $5 million. Perhaps $100 million for a copy. Might be the best book ever written (on any topic). One the best insights of this brilliant mind is that index investing is a fad. He was also early on the bear market that we've been experiencing for the past 10 years...he turned bearish in 2010, I believe. Just early. That's all. 

You can be one of the best analytical minds in the game, but if aren’t an optimist you are far less likely to enter a position.

 

Pessimism kills returns, if you think you’re smart enough to call market tops and let good opportunities pass you by you’ll probably not do as well over the longer term.

 

Optimism needs to be balanced by being humble though.  Yes there are opportunities but how well does the average member here (myself included) really know about the companies they buy?

 

For my part I can’t buy a name I don’t recognise.  Part of my goal in posting here, apart from meeting others, is to expand my universe of knowable stocks.  I probably need a few months at a minimum of knowing a company to feel comfortable enough to buy.  Many others here are not like that I expect.

 

Which helps explain my current cash problem, the number of stocks I know about and would feel comfortable buying is small.

 

 

Edited July 9, 2023 by Sweet

[Gregmal]

18 minutes ago, Luca said:

It's funny how they still manage to market them holding cash as something "wise" or smart. Opportunities every single year but thats hard to admit. 

 

Its always possible to use the punch card buffett argument and to delay the "one huge swing". Returns are around the corner!

That’s definitely true for a lot of people and especially money managers. Holding an abnormal amount of cash is a way to be edgy and make a statement to everyone about how smart you are. Because it’s not just like “oh you’re 35% cash, nice!”…its said because they know it’ll often trigger a response about “why?”…. and that’s when they get running on their super duper look how smart I am ramblings.
 

It’s ultra simple, cash is what you do if you have no ideas. I have never had an issue finding ideas and many times find both bullish and bearish ideas and hold both. Cash is basically….I don’t wanna look. 
 

Similarly a friend I know who manages mid 9 figures was boasting about how he(of course mentioning “just like Warren Buffett”) “looks through maybe hundreds of ideas and turns them down for every ONE he finds”….and we have the type of bro relationship where I could just straight face look at him and be like …dude you’ve been holding cash for 7 years and returns are publicly available and…don’t even hold a candle to an index fund lol. 

[SharperDingaan]

3 hours ago, Castanza said:

The more cash I hold the more likely I am to enter trading positions. The less cash I have the more likely I am to add to long term positions. 

 

One of the advantages to sitting in a UBS, BTC, etc. as cash equivalents; is that it removes the cash. As the brokerage statement does not show a high cash balance, you don't feel you have to re-invest, now! ; no blue pill. It also allows you to be comfortable with trading around your cash equivalent, and only entering the new position on a predatory basis (bidding in scale only when liquidity is thin). Same as 'beaters' herding game through a trap, institutions 'herd' retail as well; maturity gives you the ability to see it, and change the game. Red pill.

 

SD

[Spekulatius]

The question for somebody like Seth Klarman with a lot of cash for a long time should be why he just doesn’t return the excess money. Maybe his investors don’t mind though or think they have insurance with the knowledge that in case a crash happens, he will make excess returns buying cheap stuff. So maybe it’s on the clients, not him. 

[Parsad]

11 hours ago, gfp said:

 

Seems like 22x earnings would be more than a 3.25% earnings yield and to add dividends on top of the earnings yield is double counting.  Where does the money come from to pay the dividend - the earnings you already counted.

 

This is my short-hand version of Buffett's equity bond yield calculation. 

 

I don't run the spreadsheet 10 years out including growth in earnings.  I just take current earnings yield and add the dividend yield...it's a loose interpretation of what the annual growth in earnings would be by doing that.  It works pretty well...try it over various periods.

 

When the equity yield is at least 2% higher than the risk-free return, usually stocks will do better.  When the risk free rate is on par or higher...stay away from the broad index.  If the equity yield is double the risk free rate...load up on stocks!

 

Cheers!

[Parsad]

2 hours ago, Gregmal said:

Buffett runs a business. He’s always used leverage to produce returns. Margin before Berkshire and after he’s found ways to use the business to enhance his investing. 
 

The idea of having cash amongst investors really just comes down to your ability to find good investments. It’s not exactly indicative of anything else. Seth Klarman has held huge amounts of cash for a decade. Is that because there just haven’t been good opportunities the last decade? Lol There’s always opportunity for those willing to work hard and look for it. 

 

+1!  Also, I would add that Buffett always had cash coming in from operating businesses.  For many, they are at the stage where income flowing into the portfolio is low or negligible now...compared to when they were younger and adding lots and lots of cash each year.

 

And one other response to the Buffett rarely held cash notion is that he's frickin' Warren Buffett.  His circle of competence is probably wider than anyone else who has ever managed a portfolio, including Peter Lynch who was sifting through thousands of stocks during his Magellan days.  The active average investor's universe may be 100-200 stocks.  Cheers!

[Castanza]

1 hour ago, SharperDingaan said:

 

One of the advantages to sitting in a UBS, BTC, etc. as cash equivalents; is that it removes the cash. As the brokerage statement does not show a high cash balance, you don't feel you have to re-invest, now! ; no blue pill. It also allows you to be comfortable with trading around your cash equivalent, and only entering the new position on a predatory basis (bidding in scale only when liquidity is thin). Same as 'beaters' herding game through a trap, institutions 'herd' retail as well; maturity gives you the ability to see it, and change the game. Red pill.

 

SD

 Thx for the perspective

[Parsad]

1 hour ago, Gregmal said:

That’s definitely true for a lot of people and especially money managers. Holding an abnormal amount of cash is a way to be edgy and make a statement to everyone about how smart you are. Because it’s not just like “oh you’re 35% cash, nice!”…its said because they know it’ll often trigger a response about “why?”…. and that’s when they get running on their super duper look how smart I am ramblings.
 

It’s ultra simple, cash is what you do if you have no ideas. I have never had an issue finding ideas and many times find both bullish and bearish ideas and hold both. Cash is basically….I don’t wanna look. 
 

Similarly a friend I know who manages mid 9 figures was boasting about how he(of course mentioning “just like Warren Buffett”) “looks through maybe hundreds of ideas and turns them down for every ONE he finds”….and we have the type of bro relationship where I could just straight face look at him and be like …dude you’ve been holding cash for 7 years and returns are publicly available and…don’t even hold a candle to an index fund lol. 

 

In actuality, very few managers (probably around 5% or less) hold any significant amount of cash (more than 10%).  So I'm not sure how many geniuses are out there with their ramblings.  Most of the geniuses are the Cathy Woods type with negligible cash and buying up every momentum stock they can find.  Cheers!

[ICUMD]

Correct me if I'm wrong, but Buffett is able to access high quality investments like warrents or preferred shares, or raise capital at low rates to buy Japanese investment houses.  

 

These low risk home run plays are not accessible to the average investor.  He keeps cash on hand to make these kinda plays.

 

If he's buying, he's not waiting for a deal on a publically traded equity, at least at this stage of Berkshire.

 

In other words, I think Buffet holds cash for different types of opportunities than the average investor.

[Gregmal]

22 minutes ago, Parsad said:

 

In actuality, very few managers (probably around 5% or less) hold any significant amount of cash (more than 10%).  So I'm not sure how many geniuses are out there with their ramblings.  Most of the geniuses are the Cathy Woods type with negligible cash and buying up every momentum stock they can find.  Cheers!

Idk there’s more than I count in the niche NY value oriented hedge fund crowd. Ever see those VIC polls about how many cheap stocks you see and it’s never more than like 10% that say plenty? There’s like some stealth brag shit attached to many of these guys who see it as indicative of being super rigorous on the due diligence and having ultra high thresholds to invest, when really, it’s pretty easy. Much more common to see than say someone who’s unapologetically like yea Im completely invested and what you see is what you get. Mutual funds and ETF managers are obviously very different and yea, always invested for obvious reasons.
 

I just stick to my circle of competence and it’s never been an issue. I’ve always wanted to get into foreign stocks. Europe and Japan for years I gave a little attention hoping to learn. But it became a distraction. Just never had a hard time finding something that puts points on the board.

Edited July 10, 2023 by Gregmal

[SharperDingaan]

11 hours ago, Gregmal said:

I’ve always wanted to get into foreign stocks. But it became a distraction. Just never had a hard time finding something that puts points on the board.

 

+1.  With foreign stocks, your biggest asset is that you don't live there; hence, you can temporarily see what locals cannot. We have always found fertile ground amongst the German/Swiss/UK banks; betting on European culture, and bail-out . Your 'edge' will improve, if you also have family/relatives/contacts in the foreign location.

 

Very different when you look at the Nano-caps and small/private companies in the broader 'green' space; as there are incredible things going on, with integration years ahead of the US. Were this the 1950's again many of those involved, would have been the Staten Island immigrants that went on to build their own factories in the US. 

 

SD   

 

[scorpioncapital]

"+1.  With foreign stocks, your biggest asset is that you don't live there; hence, you can temporarily see what locals cannot."

 

I take the opposite view. It is the biggest disadvantage. I assume the locals know much better than the foreigners their culture and weakness or strengths. Buffett has always said he stays away from foreign countries because he does not know the system and is not comfortable taking such risks. Keep in mind that besides the USA, most countries have not had capital markets that have succeeded to such a degree, or have been reset - from scratch! every few decades due to communism or hyperinflation, among other types of capital controls. It's a real risk.

[Spekulatius]

42 minutes ago, scorpioncapital said:

"+1.  With foreign stocks, your biggest asset is that you don't live there; hence, you can temporarily see what locals cannot."

 

I take the opposite view. It is the biggest disadvantage. I assume the locals know much better than the foreigners their culture and weakness or strengths. Buffett has always said he stays away from foreign countries because he does not know the system and is not comfortable taking such risks. Keep in mind that besides the USA, most countries have not had capital markets that have succeeded to such a degree, or have been reset - from scratch! every few decades due to communism or hyperinflation, among other types of capital controls. It's a real risk.

I agree with this view - locals tend to have the advantage . I also find that parallels drawn from one market to another and investment thesis build around those are mostly (but not always) lacking.

 

I think we call it "goes butter goes cheese" thesis constructs in Germany. (Geht Butter, geht Kaese).

 

I still like to invest in foreign markets where I have a reasonable good understanding of the local culture &system or at least I follow some people that do. For me , this is mostly Europe.

[changegonnacome]

What I would say that is the sheer brain power dedicated to uncovering value in US equity market is so much higher than in other places..

 

Finding a 50c dollars is tough when so many are looking for them......your much more likely in US markets to find a 50c dollar that actually turns out to be worth 50c in the end i.e. mis-pricing is more of rarity in US markets......on the flip side.....what can occur in foreign markets, I've found, is kind of the symptom of the same problem/advantage......value can get created in foreign equites but the time it takes to get that value PRICED in that market can actually take a frustratingly long time......and given time matters in terms of opportunity cost such that all things being equal we'd all like to see value converge with price the moment after we buy something.....that tends to be happen pronto in US markets not so much overseas....its both a gift and a curse.