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Tuesday, 14 July 2015

Cash - Go for Effectiveness or Efficiency?


Before you ask anyone, we can make a good educated guess what their answer will be simply by verifying when they started their investment journey.

Old stock junkies, were you a bit bemused like me recently when you see people getting quite animated when STI just dropped 2-3%?

Don't talk about minus 50% 1997 and 2008 severe hair-cuts like during our Basic Military Training time. Since 2009, we have not had a plain vanilla 10% correction in our STI yet!?

End 2011 US fiscal cliff scare was the closest to a 10% correction. Missed by a bit.

So those who started during and after 2009 had never experienced a proper 20% bear market. Now how cool is that? 





What we say and do are frequently shaped by what we think we know and our past experiences.

One group will go for effectiveness and let cash rot in the bank. They have learnt the hard way that when opportunity knocks and you have cash to welcome it in, its mighty powerful!!!

Winning the war is more important than aiming to win every battle.


Another group will agonise over efficiencies - like if STI zooms up 10% and we are 30% in cash, it will be a big drag to our benchmarking with STI... How to have bragging rights like that?

Or if our income portfolio is generating 6% yield, having 30% in cash is simply too "expensive" in opportunity costs... That's no good if I want to hit my increased passive income goals.


You may want to try this exercise with your fellow investing friends.

First ask when they started their investing journey.

Then survey them what's their opinion on having cash in their portfolio.

Have fun!



 

16 comments:

  1. Hi SMOL,

    Haha, true true and I'm definitely in the let-the-money-rot camp :)

    ReplyDelete
    Replies
    1. LP,

      It's so interesting to track the changes in my psychology - from my youthful exuberant days of "chong ah" to now super "kiasi" and making sure I got check my blind-spots first before turning.

      I've gone from riding a Harley to Honda cub.

      Just as long can get from point A to point B can oredi.

      No need to impress the girls.

      I know I'm cool :)

      LOL!


      You?

      New readers reading your blog would never have guessed you traded warrants in your early days. Tsk, tsk.

      Ha ha!

      Delete
    2. LP, we are in tge same camp. I think you are more invested than me. I am trying to be more balanced. Lol

      Delete
  2. Replies
    1. CW,

      Don't have a sad face.

      Come! I cheer you up!

      We don't say "cash is rotting". We say "cash is our ballast" ;)

      Your portfolio is no longer a little rubber dinghy speedboat where you impress bikini-clad babes by zipping in and out at open waters.

      Yours is a bloody battleship!

      In calm weathers can be a bit lumbering...

      But with cash as your ballast, come turbulent storms is where your battleship will take over.

      Size does matter.

      At least to the smarter bikini-clad babes ;)

      You don't say and I won't tell your wife.

      Shh...

      Delete
    2. Learn a new term today. Cash is Ballast.

      Now, we have Cash is Rotting. Cash is King. Cash is Ballast. LOL!

      Delete
  3. Hi SMOL,

    Though I've started investing after the 2009 bear market, I still think that its good for us to balance investing in shares and keeping cash (or for me, Singapore Government Bonds, which return higher than FDs), helps us to preserve some capital and provides some passive income despite the poor market conditions that may pop up :)

    From,
    Just Some Thoughts

    ReplyDelete
    Replies
    1. Hello Just Some Thoughts,

      Welcome to this watering hole!

      To be 100% vested or 100% in cash is to have very high convictions!

      It's synonymous with "all-in" in poker ;)

      Delete
  4. Hey SMOL,

    When Euro crisis starts with the PIiG countries "shamed" STI did correct 20%. Think that was in 2012 I think.

    While my mum situation makes me hold a lot more cash now. And comparing then and now, I prefer now...

    But again, I have respect for those real discipline investors who invest come rain or shine.

    I blog about this just before I saw your post. The always vested. It works too. But I think that is more difficult than war chest.

    In between the two, are where many fumble

    ReplyDelete
    Replies
    1. Sillyinvestor,

      Give yourself a clap!

      Was waiting to see who would take the trouble to "verify" what I've said on the STI for themselves ;)

      Just before the US fiscal cliff, there's a more powderful minus 16% correction from July to Sept 2011. The 2nd half of 2011 was tough. Damn tough. See? Most people have forgotten about it already...



      Can use the stay vested all the time strategy like long only mutual funds; but like you say, it's more difficult and advanced.

      Bearish rotate to defensive stocks; bullish rotate to high beta growth stocks.

      Then there's the Hedge fund way of staying vested all the time with both long and short positions at the same time. If balanced, we are market neutral.

      If you ask me, its much easier to rotate to cash. Bullish reduce cash; bearish increase cash. Cash acts as the ballast to provide the stability for our portfolios.

      Delete
    2. Lol SMOL,

      No wor, I didn't verify. I have "complete" trust in you. I just happen to know the 2 toigh periods as I missed singpost at 96 cents during Fiscal cliff. (I had already research it) and HPHT at 60 cents UsD!

      During euro crisis, I am still very much vested in s-chips. Luckily never get burnt...

      During the 20% fall from peak, my own calculation, there were many who says it will get cheaper as there is plenty of bonds maturing for the PIIG economies. Didn't have the balls with me to invest tore then.

      Btw, when people are animated at correction of 2-3 %, it might be because the counter they are watching actually already went down 10-15%.

      I was quite animated too, but turn up to be anti-climax. All the low low bids turn out to be fat hopes the next day

      Delete
    3. Sillyinvestor,

      I myself don't trust my own memory of events. We remember what we want to remember.

      The fiscal cliff was more memorable (even though decline lesser) to me because if US "defaults", all bets are off!

      The previous bigger decline of 16% was due to the market fear of QE2 ending. Now we have been "trained" by the Fed that if market declines, they will print money! Hence we use such dips as buying opportunities and it has become a "happy" memory. Now that's scary!

      We make judgements on China govt propping up their share market, yet we ignore what the Western Central Bankers have been doing - screw the savers and support speculators ;)


      Yup, recent STI movements have been good to intraday traders. I've lost of the number of times I've to cover my Simsci shorts/hedges.

      Insurance protection on portfolio not free!

      LOL!

      Delete
  5. Hi SMOL,

    If u hav $1mil, 30% cash is a lot. If u have $50k, even all cash is not going to do a lot. U mention many times that size matters. It does!

    About investing, actually my thinking is a little bit different. To me, the top investor is not only those who experience crisis or those staying at home to read all the investment books possible. Of course it helps and if u do the that, u will already be leaders of the pack in retail investing!

    Guess if we want to go the next level, the true investor need to know about the business itself, he also know the men behind the business and what it means to sustain and grow a business.

    If you r not in the real business or get associated or hear /experience a business closely, it's extremely difficult to go to the next level.

    It's just like in swimming, there is a limit if u reach one height only in Asia. To go next level, u need to train with the best in usa!

    ReplyDelete
    Replies
    1. Rolf,

      That's why we don't invest/trade the same way with a small portfolio (rubber dinghy) and with a big portfolio (battleship).

      People who say can invest 50K in the same manner as 1 million - since the percentages are the same for cut-loss and profit targets - obviously don't have 1 million ;)


      Funny you should say that about business experience.

      I shared about my "education" from a retired mat salleh who used to chair two listed companies:

      I was so wrong on Hyflux preference shares!


      That's why I blog so I can "poke" and receive "pokes" from those who know more than me ;)

      Hammer and anvil.

      Delete
  6. SMOL,

    This reminds me of what I studied in performance mgt ( one of the accounting modules). There's 3Es which are economy, effectiveness and efficiency and economy is about minimising the cost of resources used without compromising quality which is why I love economy rice! Haha

    ReplyDelete
    Replies
    1. Joyce,

      Economy is when we buy char kway teow asking the hawker, "Uncle, more chilli, more tau-geh, more egg" without having to pay more ;)

      Typical Singaporean!

      Delete

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