Tail Risk - Is It Part of Your Investment Framework?

[coffeecaninvestor]

20 minutes ago, Castanza said:

Shit...my constraint is generally not enough capital to invest...I'll be damned if I'm going to take my meager FCF and put it into t-bills at 4%...

 

20 minutes ago, Castanza said:

Shit...my constraint is generally not enough capital to invest...I'll be damned if I'm going to take my meager FCF and put it into t-bills at 4%...

I think a more constructive conversation for the average investor who likely has the bulk of their wealth in an employer 401k and can only invest in bond or stock ETFs.. what would you do today assuming you have accumulated a large amount of capital and are not just beginning where contributions make a larger impact? I’ve largerly shifted contributions outside of retirement to avoid compounding the issue but it is for sure an issue because index fund returns are dicey looking forward 

[Munger_Disciple]

3 hours ago, LC said:

Is it harder to find in a frothy market? Sure, maybe.

But to imply that there is nothing investable out there is a problem that only a handful people globally will ever have, and we sure ain't them!

 

The more difficult problem (at least for me) is finding something that's reasonably priced that's in your sweet spot.

[73 Reds]

17 minutes ago, coffeecaninvestor said:

 

I think a more constructive conversation for the average investor who likely has the bulk of their wealth in an employer 401k and can only invest in bond or stock ETFs.. what would you do today assuming you have accumulated a large amount of capital and are not just beginning where contributions make a larger impact? I’ve largerly shifted contributions outside of retirement to avoid compounding the issue but it is for sure an issue because index fund returns are dicey looking forward 

For the average 401k investor it all comes down to time frame.  One should not care at all what might happen in the next 10 years if they are just starting out or have many years/decades until retirement.  If SPY or an equivalent is the most sensible investment choice, DCA as much as you can.  One of the very worst decisions someone can make with a 401k (outside of either not investing, investing too little or withdrawing too early) is moving money into lesser diversified funds or ETFs (or even worse yet - cash) due to some perception of economic or geopolitical events.  Very likely your timing will be bad both upon entry and upon exit and reinvestment into something else.

Edited April 16 by 73 Reds
missed line

[Castanza]

7 minutes ago, coffeecaninvestor said:

 

I think a more constructive conversation for the average investor who likely has the bulk of their wealth in an employer 401k and can only invest in bond or stock ETFs.. what would you do today assuming you have accumulated a large amount of capital and are not just beginning where contributions make a larger impact? I’ve largerly shifted contributions outside of retirement to avoid compounding the issue but it is for sure an issue because index fund returns are dicey looking forward 

 

First and foremost....DO THE BASICS WELL. Ignore the Siren of outperformance...30 years from now you will thank yourself. The further behind you feel the more likely you are to take bigger and bigger risks and the chances of permanently impairing your capital position goes up only digging your hole deeper. If you need to scratch that itch then maybe don't max your 401k but leave a small allowance for stock picking in a brokerage or IRA. I see quite a few peers in their early 30s with next to nothing saved in their 401k, no IRA and a day trade portfolio full of meme stocks. Meanwhile life gets busier than ever in your 30's (and expensive). Bandwidth gets stretched and judgement impaired and you're one bad trade away from having your future self 30 years from now rehearse in the mirror "Welcome to Walmart." Goes without saying but get your personal finances in order too. 

[LC]

26 minutes ago, Munger_Disciple said:

The more difficult problem (at least for me) is finding something that's reasonably priced that's in your sweet spot.

 

Yeah I am having more difficulty than lets say three years ago finding new investments but if I am being honest, I am not trying too hard either....the last 4-5 years were really good to me, so I am taking the opportunity to rest on the laurels a bit.

 

And that was pretty much two stocks: Fairfax and Aecon.

 

Hell, people are still saying Fairfax is cheap....Berkshire looks reasonably priced...does it need to be more complicated? 

[Munger_Disciple]

12 minutes ago, LC said:

Hell, people are still saying Fairfax is cheap....Berkshire looks reasonably priced...does it need to be more complicated? 

 

+1

[Parsad]

2 hours ago, Castanza said:

Shit...my constraint is generally not enough capital to invest...I'll be damned if I'm going to take my meager FCF and put it into t-bills at 4%...

 

It's only an issue if you leave it there. 

 

I had half of my trading accounts in cash at the beginning of the year earning 2.5%.  I put 95% of it to work last month.  The trading accounts are up nearly 20% for the year in a month.  Now the cash is slowly starting to accumulate again in each of them.

 

So, if you leave it in T-bills forever...yeah, that's a problem.  But if it's a parking spot until you find good ideas...nothing wrong with it at all.  

 

Cheers!

[Castanza]

2 minutes ago, Parsad said:

 

It's only an issue if you leave it there. 

 

I had half of my trading accounts in cash at the beginning of the year earning 2.5%.  I put 95% of it to work last month.  The trading accounts are up nearly 20% for the year in a month.  Now the cash is slowly starting to accumulate again in each of them.

 

So, if you leave it in T-bills forever...yeah, that's a problem.  But if it's a parking spot until you find good ideas...nothing wrong with it at all.  

 

Cheers!

 

Yup, I figured that was implied sentiment otherwise that timeframe can obviously flex up and down depending on your financial situation. 

[Spooky]

19 hours ago, LC said:

Hell, people are still saying Fairfax is cheap....Berkshire looks reasonably priced...does it need to be more complicated? 

 

+100

[Milu]

22 hours ago, Parsad said:

 

It's only an issue if you leave it there. 

 

I had half of my trading accounts in cash at the beginning of the year earning 2.5%.  I put 95% of it to work last month.  The trading accounts are up nearly 20% for the year in a month.  Now the cash is slowly starting to accumulate again in each of them.

 

So, if you leave it in T-bills forever...yeah, that's a problem.  But if it's a parking spot until you find good ideas...nothing wrong with it at all.  

 

Cheers!

Same I’ve always maintained a sizeable cash balance(historically has been somewhere between 25-40%), probably too sizeable if I’m being honest. Provides a good ballast to the extreme volatility in two of my largest holdings (Tesla and Bitcoin). I’ve mostly moved away from this over the past few years and am down to an all time low for me of around 7% cash. Covid crash in 2020, tech drawdown in 2022, trump tariff tantrum in 2025, and the Iran war drawdown over last few months each presented plenty of nice options for me to put the cash to work which I was happy to take.