Author Topic: 100% Cash, Ready for the Crash  (Read 31755 times)

rb

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Re: 100% Cash, Ready for the Crash
« Reply #10 on: November 23, 2016, 08:36:51 PM »
Yea, I don't have a big urge to sell anything that I have. I'm sort of ok with where they are. But also I'm having a very hard time finding new stuff to buy.

I don't think we're on the verge of a crisis. But why is anyone looking for a crisis to spark a selloff? If I recall things were ok in 1987 and 2002. That didn't prevent the stock market from giving a beat down to investors. I'd add that in my view the market optimism is somewhat superficial. It didn't take a lot for stocks to sell off quite a bit last fall and early this year. So I think that we might just have an old fashion boring pullback just because the markets ran a little too far and a little too fast.

To paraphrase Uccmal, when there's no real good value to be had anywhere anymore, it's probably a good indication that we're due for a pullback. Where it comes from? Who knows?


dwy000

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Re: 100% Cash, Ready for the Crash
« Reply #11 on: November 23, 2016, 08:47:10 PM »
Just curious - if you're investing for a crash (or I guess uninvesting), what happens if there is no crash?  If the market is flat or is up/down say 3% next year will you pile back in?  I thought it was fairly priced before the election and am very glad I didn't sell out.  Too many times I've watched an overpriced market rise up even further.

I prefer to pick stocks I think will outperform the market over the long term and let the market do whatever it will do.

UNF2007

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Re: 100% Cash, Ready for the Crash
« Reply #12 on: November 23, 2016, 09:02:47 PM »
I kind of feel the same way for a few reasons. 1. if interest rates are like gravity when valuing equity, what happens when they start cranking the dial the other way? 2. I can't find any compelling values at the moment 3. The market seems to be pricing in lots of stuff that hasn't happened yet based on the election 4. the opinion of the financial pundits seems to have gone from cautious optimism to complete risk off with rose colored glasses which can influence the investing public. 5. We are probably nearing the end of a long term debt cycle.

LR1400

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Re: 100% Cash, Ready for the Crash
« Reply #13 on: November 23, 2016, 09:09:21 PM »
I've considered selling multiple businesses, however, I've held off. At times, I consider his a personal weakness. If I get in at a cheap to decent price I really hate selling my asset.

As long as earnings support the valuation, I'm going to hold onto the majority of these businesses. They include WFC, CHL, GS, AXP. Previously sold MCD, I thought they had reached full valuation, and T, which I wasn't a fan of as a business.

The asset based/book value/Graham type purchases I will sell as they reach book value. O&G based businesses, I will sell when they reach full value again, miners, the same. One recent purchase, NVGS, I will hold until it reaches book value as well.

Uccmal

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Re: 100% Cash, Ready for the Crash
« Reply #14 on: November 24, 2016, 04:59:59 AM »
I've considered selling multiple businesses, however, I've held off. At times, I consider his a personal weakness. If I get in at a cheap to decent price I really hate selling my asset.

As long as earnings support the valuation, I'm going to hold onto the majority of these businesses. They include WFC, CHL, GS, AXP. Previously sold MCD, I thought they had reached full valuation, and T, which I wasn't a fan of as a business.

The asset based/book value/Graham type purchases I will sell as they reach book value. O&G based businesses, I will sell when they reach full value again, miners, the same. One recent purchase, NVGS, I will hold until it reaches book value as well.

Makes sense to me. 

GARP tending toward value

SharperDingaan

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Re: 100% Cash, Ready for the Crash
« Reply #15 on: November 24, 2016, 06:10:27 AM »
You might want to consider 50% cash instead of 100%, & the timeframe over which you want to hold the cash.
Also whether this is at the portfolio, or individual security level.

SD

 



Uccmal

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Re: 100% Cash, Ready for the Crash
« Reply #16 on: November 24, 2016, 06:59:06 AM »
I am going to add a couple of caveats to my cautious dissertation above:

1) Personal:  I carry quite a bit of margin debt some of which was indirectly used to finance a real estate purchase.  And I live off the dividends.  So, I need to be very careful and am appropriately hedged with a basket of low lying puts as catastrophe insurance.  And I am opportunistically selling some stocks.

2) The business cycle has become impossible to decipher due to government intervention.  Early bear, late bull, early bull?   Everything is out of whack.  All we really know is that debt is piling at various levels (including non financial corporations) and stock markets are probably over valued, given the lack of good deals, if nothing else. 
GARP tending toward value

Cardboard

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Re: 100% Cash, Ready for the Crash
« Reply #17 on: November 24, 2016, 07:27:04 AM »
I have said a few times that the best hedge is cash and if you are already into cash the second best hedge are SPY Calls.

The latter is some crazy thought that I had back in 2013 I think. Essentially, the problem with being into cash is that you are afraid to underperform the market. Well, the calls solve that at a very low cost since volatility is also usually very low when the market is high or when you are having trouble finding bargains.

Buying puts or shorting the market is a terrible hedge IMO and trust me, I have tried it before. If you are a good investor and sit on dry powder, you will have no problem making a lot of money by deploying your cash during a panic. The low likelihood that you will time the market right and extra stress of puts, shorts is simply not worth it IMO. Even if you are right on, it will also cloud your judgement when time to deploy cash is right in front of you since you have these instruments that keep on increasing in value. You will kind of hope for the market to keep going down, be too negative and miss on fantastic bargains.

Now regarding that latter thought, there are juicy bargains right now in Western Canada and into Canadian preferreds. They are certainly not priced like everything is rosy...

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scorpioncapital

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Re: 100% Cash, Ready for the Crash
« Reply #18 on: November 24, 2016, 08:01:36 AM »
Note Buffett's answer to question #7 a few days ago to some students -

Question 7:  What impact have the fixed income markets had on stocks?

WB:  Interest rates are to asset valuation as gravity is to matter.  It will take a lot of movement in interest rates (similar to Paul Volcker in 1981-2) before stocks are too high.  The interest rates on 30 year Treasury bonds have declined from 14 ˝ % to 2 ˝ % from 1982 to 2016.  Recently, the 30 year Treasury moved from 2.6% – 2.8%.  Stocks are cheap if long term rates are at 4%, four to five years from now.  “We are buying more shares than selling everyday unless interest rates move appreciably higher”.  A profitable trade would be to short the 30 year bond and go long the S&P 500 (assuming no margin calls).  But this is difficult to do on a big scale.  Borrowed money causes more people to go broke than anything else. Charlie Munger has said, smart people “go broke from liquor, ladies and leverage”.

If even he isn't sure that stocks aren't actually cheap right now and might double from here, how sure are we that stocks are overvalued to be 100% in cash? That seems a radical position as well.

Philip Fischer answered the question 'When to sell' in Common Stocks & Uncommon Stocks. If the right stocks are purchased, the answer is (almost) never. In Path to Wealth he elaborates even further and addresses the question of 'overvaluation'. He says even IF stocks are overvalued, an investor in such stocks probably should hold on. He asks the question, 'What are we trying to achieve?' Part of this obviously has to do with your time frame and goals from investing. 

However, like Munger and Buffett also mention, leverage can be a killer. The situation I grapple with (and see adjacent thread) is what to do when using some leverage. The conclusion of several wise investors is you should be a little more aggressive on an uptrend in that situation - and even then I wouldn't sell everything. But in a cash account, this constraint is lifted almost entirely.
« Last Edit: November 24, 2016, 08:07:53 AM by scorpioncapital »

DooDiligence

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Re: 100% Cash, Ready for the Crash
« Reply #19 on: November 24, 2016, 09:12:38 AM »
Very nice post Scorp (I'm holding about 50% cash in brokerage/401K) but I've almost always held larger cash & cash equivalents for deployment when opportunities present themselves (not trying to time markets, just looking for attractive high conviction purchases.)

I usually range anywhere from 10% to 60%.

Bought NVO recently & will round out my ownership stake if it nears $30. which should leave me at around 45% cash.

I don't count cash held in my real estate / renovations account or my emergency fund.
Healthcare 40.8% - ABC BBH CVS DVA EW NVO // BRK.B - 14.7% // Media & Communication 12.7% - CHTR CMCSA DIS

Drinkers & Smokers 13.5% - ABEV MO // Auto's & Oil 13.8% - CLB GPC VDE // Tech & Comms 4.4% - AAPL SFTBY

%'s held @ MV 11/23/2018 minus $$$ 4 skool

ready 2 wait

https://twitter.com/tunawish