I got around to watching Cashin' In on Tivo Sunday morning when I got up. Toward the end of the show Jonathan Hoenig took a heckling of sorts for being 100% cash.He has trepidations about buying stocks right here, at least for the challenge. I have mixed feelings about this as far as being a message for investors about how to manage their own portfolios.
To get one point out of the way, he may turn out to be 100% right being in cash.
The negative aspect of what he is doing is that 100% of anything is an extreme position. I am not a big fan of all or nothing strategies. The market could rally 6% over the next two weeks and then stay in a 1% range the rest of the year. That is not a prediction, but one of a zillion possible outcomes. In this one particular outcome 100% cash during this hypothetical 6% move would make it very difficult to stay close for the year. And keeping close is all most investors need to do.
He made one point in defense of his position that is very constructive. He said he doesn't feel like he has to buy something. This is important, buying just to buy is not a good idea at all. They way I think this incorporates with my first point without being too two-faced is by not automatically buying something when you sell a stock.
If there is a stock you want to buy, fine, but the point is you do not have to immediately buy one stock to replace another.
12 comments:
I saw that same show and I too was disappointed with his defense. I think a better response, which I think is his stance, is that lost opportunity is easier to make up than lost money.
While 100% cash is "extreme" as you say, the only thing he can lose is purchasing power due to inflation, and the opportunity cost of equities moving without him. What can he lose by owning equities that are overpriced? A lot more than the other two items.
Yeah... I remember in the 80's, we'd buy WMT every time it hit a new high. Most would not touch it. The press were saying it was overbought and pricey. It stayed that way for 10 years. It was ALWAYS expensive. So was KO.
Just something to chew on. For me, there is always something going up.
g
Of course KO got so expensive with deteriorating fundamentals (particularly revenue growth), that it hasn't moved anywhere in ten years.
And of course if you bought it EIGHT or NINE years ago, you'd still be down 35-40% (less dividends).
So I think that fundamentals remain important ...
Jay Walker
Aye, Jaybird, fundamentals remain so important. My comment was only to point out that sometimes, the people making the assumptions that make up the Fundamental buy, sell, or hold decisions------may be wrong. OR early, or late......
I saw people in cash for years. Many in cash and bonds until....you guessed it, 1999. ( They thought stocks were overpriced and too afraid to buy----until 1999 )
All I'm saying that to some people an equity may be "overpriced", to others, it may be a buy. This is an Art, not a science. Fundamental opinions are made by men and women who are estimating the future. Overpriced? You won't know until the future has happened. No one does.
Yes, I agree George, that's always true to some extent. And sometimes stocks can be over and undervalued for years and it's tough to get confirmation from the market - becuase the whole thing is in a "soft patch", or some sectors look overvalued, while others look cheap.
Currently, I think the yield on good quality bank stocks is saying something that the market doesn't agree with - yields in the 4-5% range. It hasn't been this good for years. Perhaps the market is currently over-cautious about this sector - certainly looks that way to me.
And people definitely get swept up emotionally from time to time - I entered the NASDAQ in the late summer of 1999, but at least I bailed before the crash was complete. Thing was - I KNEW it seemed very high at the time, but got caught up in the "paradim shift" that everyone was talking about.
Please post you view on what it means to be in "cash"?
Lots of high profile investors talk about thier current cash position but what is that?
Money Market? Inflation Protected Treasuries? Foriegn Currencies? Savings Account at ING.com? Gold ETF?
I have some cash in all of the above, is some cash better than others?
Even a savings account at ING gets you ~%4.X% and have some risk / reward attributes so its that cash or is the only "true cash" have paper under your mattress?
Most consider "cash" as money market funds. Yes, some risk, but...
With the money markets in the 4-5% range this makes a pretty viable place to have some money. IMHO
What is "cash" these days? Come to think of it, when most of it is just a digital entry in some database, what exactly is "money" these days?
Well, enough philosophy, from my perspective cash is anything highly liquid that has minimal or no default risk, minimal price risk and negligible transaction cost; e.g., dollar bills and other legal tender, insured bank accounts, short-term paper of high credit quality, a money market or very short term govt bond fund.
If I have to worry more about its purchasing power than its price and fungibility it's cash, or close enough that I can likely treat it as such.
RW
What is cash, I think George and RW covered it, thanks guys.
I would reiterate gold is not cash. When I say cash I mean a money market that is completely liquid. From a risk standpoint I suppouse a three month t-bill would be included too. CD's not really because they are not liquid.
Isn't hoenig in a money fund of some sort?
yes he manages money. I do not take 100% cash to be his position in his MM practice however.
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