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Having the Cash Option

There are days when I feel that I didn’t really deliver as a blogger writing about investing. The time is probably now.

I could have written about the next best stock that perk up my interest and you should take note as well.

Sadly, due to studies and work, I cannot do that well recently.

It becomes an issue personally because new cash set aside for the portfolio cannot find  a home.

Parking the cash

The thought of trying to find a place to park them, the feeling of missing out is hard to shake off. Investors find cash to be unattractive as it don’t earn anything now. But I do urge investors to rationalize.

If you have 30% cash, I think it is a good allocation to be in. Cash itself, is also an asset class.

Markets move in a cycle, and there will very much have a time when there is a 20-30% correction.

Look at your cash as an option that can purchase good stocks at cheap price. That’s how Warren Buffett rationalize cash. He is not afraid to hold it.

If the market hums along u still have 70% to take advantage of it.

What I did and aim to do

In my case it is 40% equities 60% cash. that’s probably too much and a sort of headache as I cannot find good areas to deploy to.

I recently deploy into Ascendas REIT, Frasers Centerpoint and Parkway Life REIT. These seem to be well managed REITs paying more than fixed deposits. Their price is relatively stable. I should have enough reaction time should shit hits the fan, to liquidate and scale down.

I also increase the stake in China Merchant Pacific which will go ex div on 19th Oct. I hope I am not buying into dividends.

The immediate allocation is more towards 30% cash, 30% low volatile assets yielding 3-6% and 40% equities.

Fight the urge to buy fair value assets with a view to hold them long.

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Swee Chye

Monday 15th of October 2012

No, I'm not certified, but had the materials, as that was an option I was considering. However, PM task or work, isn't really what I like.

I know of a former colleague, who is a PM and he did pass at 1st attempt, doing self study. He realised the gap he needed to cover, and simply follow the rules, although in real life, some are not very practical or feasible in our Asian context.

I suppose you don't follow strictly the 50 vs 200 MA, but it has been correct more than 80% of the time in over 100 years to be far wrong, esp based on all the major markets. It gives a good view, combine with other factors, and you can't go too far wrong.

I suppose the too much cash factor will be seen differently esp. if and when the next bear is the biggest bear ever seen. If it is not a big bear, you simply make less money, without getting hurt, or losing too much opportunities.

Is upside potential at least twice your downside risk? It all boils down to individual stand on how much is too much cash, and the time factor.

Swee Chye

Sunday 14th of October 2012

actually, I know of a proven example by a guru, who has passed away, where he uses Market cycle investing did work.

Just need to understand the investment clock well, and also that the 50 vs 200 MA (golden or death cross) of the major markets has shown to work in more than 80% of the time over 100 years.

As long as downside risk is half the upside potential, you can profit even more (50% or more) by staying in cash, as compared to be fully invested.

Swee Chye

Sunday 14th of October 2012

Drizzt, if you need some test samples or practice papers, I may have them, got to dig it up, no guarantee though.


Sunday 14th of October 2012

thanks Swee Chye, are you certified? any tips to pass? seems i have heard too much failures over here haha.

well 50/200 have proven to make u miss out on alot of upside and not saving much downsides. staying in too much cash while it breaches current level is bad, not getting out if it continues its secular bear cycle is bad as well haha

Swee Chye

Monday 8th of October 2012

just curious, what is the nature of your work? Are you in the financial industry?

And what type of study ar you doing? work related, or personal, or a combination of both?

Actually, I believe you are in a good position in that the upside potential is definitely not twice the downside risk.

So the 60% cash position is definitely a good one, since you never know when the sudden and deep crisis will happen, and with that kind of opportunity fund, you can actually make more than the 5-10% return currently, assuming you are having that currently.

The great crisis that is lurking will actually give you 50-100% or even more returns, that can more than make up for the idle cash position currently. Be patience, and you will be rewarded even more.

This is my believe, that sitting on idle cash and lower equity with the current climate is still better than higher equity with even higher risk. The returns are always greater when you deployed it during crisis.

You can also look at a permanent portfolio, or a portfolio of equity, bonds, and other instruments you are familiar with, like property, wine, art, land bank etc. as a balance of the overall portfolio.

Cash itself, is definitely a great asset in the current situation. You will be amplely rewarded for it :)


Saturday 13th of October 2012

hi Swee Chye, life can be a bitch. Sometimes the best opportunity might not work out that way in the past. I am studying for PMP. and my nature of work is in operation and support. More details i think you already seen in my LinkedIn haha.

It sometimes boils down to value. 1 year ago the yields are higher, and yield is one of the indicator of value. David Rosenberg highlighted that in this low bond yield environment, even an overpriced reit may look more beautiful than cash and bonds. He still like cash and high quality companies >>

Thanks for sharing your thoughts.


Sunday 7th of October 2012

Problem with cash is that it is "expensive" to hold in a 5% inflation environment. On one hand you have uncertain future buying opportunities if you hold cash, on the other hand a certain loss of purchasing power. Tough choice.


Saturday 13th of October 2012

hi Marti, its worse if its stagflation. but i dunno. its good to have a crystal ball sometimes. deflation and inflation is sometime joint at the hilt.

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