I think you can find opportunities in every earning season or some event in news. Find good valuations for stock picking is possible all the time. Dont need to wait a super crash (20+%) to invest. For ETFs I need a good correction.
Charlie munger would say hold cash in case the big crash comes. If your over invested you may have the urge to sell when the stock is down. Never interupt compounding never sell quality stock.. Also hold cash for emergency and when you will buy at the Bottom. In turn the impatience will transfer the wealth to the patience. Everyone has a genius plan then fall apart downturn happens and lose big or all without the moat.
4:26 this chart isnt as good as one might think. If the market crashes a 20% one year, next year it has to climb a 25% to break even, and if it crashes a 30% or 40%, it needs a 42% or a 66% respectively. Then we are left over with only a handful of more years when it went up a 10% than years when it went down a 10%, and a lot of years when it did nothing. All this implies huge opportunity costs to make, on average, what looks like a pittance. Lots of savings accounts will actually return dmall but constant interests that beat inflation by a couple points at least. I am a lot less convinced now than before the video started. Maybe looking at annualized average log-returns would make your point better.
This will always depend on your investing style. Personally I try to time the buys and sells with intraday/week dips and highs using limits and options, and having no cash creates a big, constant opportunity cost. But of course I pick individual stocks and not index funds.
Great vid! I prefer zero-cash. I do rebalancing, so I'm benefitting from temporary down swings of my assets by buying into them from gains I get from my winners of the moment. I only keep cash when I plan buying a stock whose technical analysis tells me it's trending down.
Can we talk about what price to buy X stock at? I want to tell when a stock is on sale and is a good price, not overpaying. Using PE ratio, everything is at least 10 PE, so I don't think PE can help indicate a good watchlist price
Always hold 2 or 3 years worth of cash outside of your retirement accounts so you can ride out a bear market and not be forced to dip into principal. With higher interest rates now available regarding Money Market and CD you can hold some additional cash outside of your retireement accounts to give you additional peace of mind. Interest rates paying 4 to 5 percent are nothing to scoff at
This video is so right. I am a MD sold almost all my stocks in January 2020 at the top. I knew covid would be huge. Unfortunately I waited way too long to get back into stocks. By the time I repurchased was above where I had sold most things. I am sure not smart enough to know both when to get out and when to get back into market.
A 10yr horizon seems excessive to hold cash. I could see maybe 5yrs… but closer 3yrs is reasonable. That said, its all about your time horizon when you'll deploy the cash.
I do hold a small amount of cash, like $100 for potential account fees at the end of the year. Other than that, I do invest in a money market at the moment and issue cash secured puts against that value.
Hi Nathan. I enjoyed your video "5x Returns with Half the Risk [1928-2023]." However, I do not know how to apply the two economic indicators you mentioned to my charts – real retail sales growth and industrial production growth. How can I apply this data on TradingView charts? Thank you!
I've always thought it foolish to wait for a "buying opportunity". It usually leads to one siting on the sidelines as the stock goes up. It's great to actually see quantitative evidence supporting this.
I am holding most of my cash in a US treasury money market fund yielding 4.8%. Cash I have for paying monthly bills is sitting in an online Capital One savings account yielding 4.15%. Cash paying my American Express credit card is sitting an online American Express savings account yielding 4.0%. I tried placing money in a 6 month CD at a local bank but interest earned with my online savings accounts above the CD rate.
This idea is fine while the economy has population growth which equals economic growth. Id be cautious of growth in population decline. Might be 30 yrs away tho ha
Stocks are 63% of my holdings today. In that 63% bucket is ~25% S&P fund and ~75% discrete stock. Some small amount are warrants but that's my only leverage. I only hold 10 companies at a time since there's not enough free time to understand more. If I stop enjoying them that, 63% will likely be 100% S&P or some mix of indices. At my income level, long gains and qualified dividends are federally taxed 0% so it's incredibly rare that I sell any short shares unless the story looks really bad or I'm maxing out my IRA and HSA and defer the tax.
Non-Stock holdings totaling ~47%, are a mix of bonds (one a cheap bond fund) and money-market. Within that non-stock group, bonds are 70% and money-market 30%.
Overall I'm 63% stocks, 26% bonds and 11% money-market and nothing to invest aside from DCA from a portion of my paycheck.
Berkshire Hathaway is sitting on a lot of cash waiting for the right time / opportunity to invest.
Cash is just a sub-type of bond. Do you have bonds? What time to maturity (or duration)? If you look at BND, it has 40% annual turnover and an average of duration of 6.5 years with an average effective maturity of 8.9 years. This means that in addition to the nearly 1% cash, holders of BND have a significant amount of short term and very short term bonds, or what I would call "cash equivalent."
Bond funds are an execrable investment so I don't do much in any significant duration. I have 2.5% in bonds that are longer than about 2 year duration, and 16.5% in short term bonds including cash or cash equivalents (that is everything other than my checking account, including cash value in my life insurance). I think I need another 1% to 2% in cash as I head into retirement, but barring a major market drop in the next few years I expect this will be my peak bond + cash allocation as dividend income now exceeds my expenses and I'll be eligible for social security in a few years (but don't intend to claim until 70).
35 comments
I think you can find opportunities in every earning season or some event in news. Find good valuations for stock picking is possible all the time. Dont need to wait a super crash (20+%) to invest. For ETFs I need a good correction.
Charlie munger would say hold cash in case the big crash comes. If your over invested you may have the urge to sell when the stock is down. Never interupt compounding never sell quality stock.. Also hold cash for emergency and when you will buy at the Bottom. In turn the impatience will transfer the wealth to the patience. Everyone has a genius plan then fall apart downturn happens and lose big or all without the moat.
Thanks…great advice
Isn't holding some cash in bills and rebalancing twice a year strategy brings better results then 100% stocks portfolio?
Thanks for the valuable info
The best there is holds 25% cash in his portfolio
4:26 this chart isnt as good as one might think. If the market crashes a 20% one year, next year it has to climb a 25% to break even, and if it crashes a 30% or 40%, it needs a 42% or a 66% respectively.
Then we are left over with only a handful of more years when it went up a 10% than years when it went down a 10%, and a lot of years when it did nothing.
All this implies huge opportunity costs to make, on average, what looks like a pittance. Lots of savings accounts will actually return dmall but constant interests that beat inflation by a couple points at least.
I am a lot less convinced now than before the video started. Maybe looking at annualized average log-returns would make your point better.
This will always depend on your investing style. Personally I try to time the buys and sells with intraday/week dips and highs using limits and options, and having no cash creates a big, constant opportunity cost.
But of course I pick individual stocks and not index funds.
You have made a great point.
I put $0.0 in my etrade but it yelled at me so I put back $4.99
Great vid!
I prefer zero-cash. I do rebalancing, so I'm benefitting from temporary down swings of my assets by buying into them from gains I get from my winners of the moment.
I only keep cash when I plan buying a stock whose technical analysis tells me it's trending down.
Can we talk about what price to buy X stock at? I want to tell when a stock is on sale and is a good price, not overpaying.
Using PE ratio, everything is at least 10 PE, so I don't think PE can help indicate a good watchlist price
so the cash portion of your portfolio is just a 6month emergency fund?
Last reason is 💯the truth.
Excellent advice what your advice on short term CD’s Treasuries laddering if need while getting 4 to 5%
thank you
Excellent video – this channel is a gem.
Reason #4: your money won’t grow if it’s just sitting there waiting to be invested…
Always hold 2 or 3 years worth of cash outside of your retirement accounts so you can ride out a bear market and not be forced to dip into principal. With higher interest rates now available regarding Money Market and CD you can hold some additional cash outside of your retireement accounts to give you additional peace of mind. Interest rates paying 4 to 5 percent are nothing to scoff at
This video is so right. I am a MD sold almost all my stocks in January 2020 at the top. I knew covid would be huge. Unfortunately I waited way too long to get back into stocks. By the time I repurchased was above where I had sold most things. I am sure not smart enough to know both when to get out and when to get back into market.
Nathan where the flip is the final round dividend champion video ??
A 10yr horizon seems excessive to hold cash. I could see maybe 5yrs… but closer 3yrs is reasonable. That said, its all about your time horizon when you'll deploy the cash.
I do hold a small amount of cash, like $100 for potential account fees at the end of the year. Other than that, I do invest in a money market at the moment and issue cash secured puts against that value.
I would like to suggest to you to review SPYI let me know if you like this ETF
Hi Nathan. I enjoyed your video "5x Returns with Half the Risk [1928-2023]." However, I do not know how to apply the two economic indicators you mentioned to my charts – real retail sales growth and industrial production growth. How can I apply this data on TradingView charts? Thank you!
I've always thought it foolish to wait for a "buying opportunity". It usually leads to one siting on the sidelines as the stock goes up. It's great to actually see quantitative evidence supporting this.
Another excellent data driven podcast …..being retired I need to keep quite a bot of cash as don’t want to run short during a prolonged market slump.
I am holding most of my cash in a US treasury money market fund yielding 4.8%. Cash I have for paying monthly bills is sitting in an online Capital One savings account yielding 4.15%. Cash paying my American Express credit card is sitting an online American Express savings account yielding 4.0%. I tried placing money in a 6 month CD at a local bank but interest earned with my online savings accounts above the CD rate.
This idea is fine while the economy has population growth which equals economic growth.
Id be cautious of growth in population decline. Might be 30 yrs away tho ha
<1% of just plain cash to invest.
Stocks are 63% of my holdings today.
In that 63% bucket is ~25% S&P fund and ~75% discrete stock.
Some small amount are warrants but that's my only leverage.
I only hold 10 companies at a time since there's not enough free time to understand more.
If I stop enjoying them that, 63% will likely be 100% S&P or some mix of indices.
At my income level, long gains and qualified dividends are federally taxed 0% so it's incredibly rare that I sell any short shares unless the story looks really bad or I'm maxing out my IRA and HSA and defer the tax.
Non-Stock holdings totaling ~47%, are a mix of bonds (one a cheap bond fund) and money-market.
Within that non-stock group, bonds are 70% and money-market 30%.
Overall I'm 63% stocks, 26% bonds and 11% money-market and nothing to invest aside from DCA from a portion of my paycheck.
Great content.
Thank you Nathan, you made very valueable poinnts in the video. Especially the first one illustrated me a thing I was not aware of.
Berkshire Hathaway is sitting on a lot of cash waiting for the right time / opportunity to invest.
Cash is just a sub-type of bond. Do you have bonds? What time to maturity (or duration)? If you look at BND, it has 40% annual turnover and an average of duration of 6.5 years with an average effective maturity of 8.9 years. This means that in addition to the nearly 1% cash, holders of BND have a significant amount of short term and very short term bonds, or what I would call "cash equivalent."
Bond funds are an execrable investment so I don't do much in any significant duration. I have 2.5% in bonds that are longer than about 2 year duration, and 16.5% in short term bonds including cash or cash equivalents (that is everything other than my checking account, including cash value in my life insurance). I think I need another 1% to 2% in cash as I head into retirement, but barring a major market drop in the next few years I expect this will be my peak bond + cash allocation as dividend income now exceeds my expenses and I'll be eligible for social security in a few years (but don't intend to claim until 70).
I have an emergency fund, that’s the only cash I hold
Actually true cash in brokerage pays less than most savings accounts. That’s true cash liquidity, not investment.
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