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Big Question is "Yes or No"
Old 03-12-2005, 09:44 AM   #1
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Big Question is "Yes or No"

This is exerpted from 2004 report by money manager Seth Klarman of Baupost Group:

Some argue that holding significant cash is gambling, that being less than fully invested is akin to market timing. But isn't a yes or no decision the crucial one in investing? Where does it say that investing means always buying something, even the best of a bad lot? An investor who can't or won't say no forgoes perhaps the most valuable tool available to investors. Charlie Munger, Warren Buffet's long-time partner, has counseled investors, "Look for more value in terms of discounted future cash flow than you are paying for. Move only when you have an advantage. It's very basic. You have to understand the odds and have the discipline to bet only when the odds are in your favor."

Sounds like a plan.

Mikey
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Re: Big Question is "Yes or No"
Old 03-12-2005, 10:56 AM   #2
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Re: Big Question is "Yes or No"

A lot of funds, and buffett as well, are holding an awful lot of cash. And they hate to hold cash.

Should tell us something.
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Re: Big Question is "Yes or No"
Old 03-12-2005, 11:41 AM   #3
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Re: Big Question is "Yes or No"

Quote:
A lot of funds, and buffett as well, are holding an awful lot of cash. *And they hate to hold cash.

Should tell us something.
Not just any kind of cash, but significant holdings in non-US currency.
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Re: Big Question is "Yes or No"
Old 03-12-2005, 02:56 PM   #4
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Re: Big Question is "Yes or No"

If all these firms are holding so much cash, how are valuations still so high?

I agree that the price you buy an asset is an important consideration...although the idea of buy-and-hold has worked well over recent history in the general US market, will it continue to work in the future? It certainly would NOT have worked for a Nasdaq investor, nor someone in the Nikkei...

Sometimes I think about only buying assets that yield at least 1% in current income (through dividends or interest payments), but at least they're paying out something tangible, rather than relying on pure speculation that someone else will be willing to pay more for a security later on (and the only reason he's willing to pay more for it is because he thinks that someone ELSE will be willing to pay for it later on...the greater fool theory). Of course, this strategy would prevent me from holding most of the US equity market and an even greater portion of the intl market...would also take on more interest rate risk.

Then there are other days where I think about putting everything in a mix of EE and I savings bonds and forgetting about the market...hopefully keeping up with inflation plus a few points, and never having to worry about losing principal (short of a government default).

FWIF, right now I'm holding:
Savings bonds: 65%
Equities/commodities/misc: 23%
Intermediate duration bonds: 12%

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Re: Big Question is "Yes or No"
Old 03-12-2005, 04:22 PM   #5
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Re: Big Question is "Yes or No"

This thread is hitting home hard. I'm still 50+% uninvested. Doesnt make me a bad person or a DMT (dirty market timer). I just want it to feel right as the picks are picked.

BUM
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Re: Big Question is "Yes or No"
Old 03-12-2005, 08:36 PM   #6
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Re: Big Question is "Yes or No"

Dont feel bad. I've got six figures in cash, and as we JUST GOT A FULL PRICE OFFER ON MY WIFES OLD HOME (!!!) we're going to have another quarter mil in cash.

I cant see a dang thing I want to put that money into outside of a 1 year CD.

Sure, market timing blah blah, nyah nyah. I aint buying if the prices arent right. Looks like I've got an awful lot of company.
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Re: Big Question is "Yes or No"
Old 03-12-2005, 10:27 PM   #7
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Re: Big Question is "Yes or No"

I am in the same boat, about 40% in cash or equivalents, the market looks like a shark tank to me (basking shark-not great white ) but I'm reducing that number in a measured fashion over the next year. But it feels like damned if you do, damned if you don't. If the dollar's fall and interest rates recent rising trends start accelerating inflation, will I get burned that way? About a year ago, I finally learned enough to realise I didn't know a thing...still in that phase. :-/
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Re: Big Question is "Yes or No"
Old 03-13-2005, 03:46 AM   #8
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Re: Big Question is "Yes or No"

If you guys are right (staying out of the market), it reminds me of my no-stocks position, i.e., maybe I am right at least for now. Or is this like the broken clock
that has the correct time twice each day?

JG
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Re: Big Question is "Yes or No"
Old 03-13-2005, 04:08 AM   #9
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Re: Big Question is "Yes or No"

It depends on the skill set you bring to the party.

More than one way to skin a cat.

Caveat: Per Buffett - if after a few hands into the game, if you can't identify the patsy, it's you.

For schmucks like me - balanced index based on age and side money in dividend stocks to cover male hormonal urges.
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Re: Big Question is "Yes or No"
Old 03-13-2005, 09:38 AM   #10
 
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Re: Big Question is "Yes or No"


My biggest investing mistake since I started around 1990 is holding too much cash. I've been DCA stocks, bonds, and a laddered CD portfolio for 3 years now.
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Re: Big Question is "Yes or No"
Old 03-13-2005, 10:03 AM   #11
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Re: Big Question is "Yes or No"

The big difference between now and 1990 is the expense of the stock market and the difference in bond yields.
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Re: Big Question is "Yes or No"
Old 03-13-2005, 08:04 PM   #12
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Re: Big Question is "Yes or No"

Last week I reduced my IRA to 50% equity from
60% and added 2 asset classes (EPP and FXI)
to the equity side. I also added unhedged foreign
bonds (GIM) to the FI side. These were all moves
to increase international exposure to hedge
against the falling dollar. In January, I changed
most of my bond allocation to securities that
pay 2+% + CPI as an inflation hedge.

If you want to know why, read "The Coming
Generational Storm".

Yes, I suppose I am a dirty market timer but it
feels good!

Cheers,

Charlie
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Re: Big Question is "Yes or No"
Old 03-14-2005, 10:36 AM   #13
 
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Re: Big Question is "Yes or No"

Quote:
The big difference between now and 1990 is the expense of the stock market and the difference in bond yields.
I'm talking about every year since 1990. There may have been one or two years where holding cash made sense, but even in an environment with rising interest rates I expect short term bonds and CDs to outperform cash investments if the holding time is long enough.
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Re: Big Question is "Yes or No"
Old 03-14-2005, 10:53 AM   #14
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Re: Big Question is "Yes or No"

I wont disagree with the CD's, thats where most of my cash position is.

I'm sure over a 2-3 year period the short term bond fund works out almost as good. I just havent had such good experiences with using it as a money market replacement. If you missed my post on this from my tax preparation day, it made a mess for me. Since the STB funds pay dividends monthly, and I like I imagine most others do have that dividend reinvested (a 'buy'), that makes every sale of the fund to move cash into your checking account a 'wash sale'. I think 70-80% of my 'sales' produced a small loss and hence were subject to the wash sale. Calculating all those little in and outflows to determine the extent of the wash sale was a pain in the butt. Also the net small losses wiped out most of the interest paid.

So lesson learned was that STB funds are good places to make slightly more than MM accounts, less than longer term cd's, and for the love of god dont do very many transactions on it.
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Re: Big Question is "Yes or No"
Old 03-14-2005, 11:58 AM   #15
 
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Re: Big Question is "Yes or No"

I saw your note on ST bond fund withdrawals. Thanks for posting your experience. I don't count my CDs or ST bond fund as cash, I consider it a conservative place to store money while I'm seeking better places to invest it. Holding about a years worth of spending in a money market account makes sense. Over the years I've held much more than that and have missed out on thousands of dollars in dividends/interest.

Now if I could just find a better place to put the large short term bond and CD holdings I'd be set. I've started looking at buying a house (again), but prices are so high relative to rents I can pay my rent with less than 2/3 of the proceeds needed to by a house invested in a 4 year CD. Longer term bonds seem to risky (I've been saying that for years), and the stock market is high.
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Re: Big Question is "Yes or No"
Old 03-14-2005, 01:07 PM   #16
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Re: Big Question is "Yes or No"

I agree, I don't like the market prices. I'm contributing to my 401k in International and ST Securities. My Roth I'm holding new money in cash and I've stopped contributing to my after tax account and am paying off the mortgage instead.

-helen
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Re: Big Question is "Yes or No"
Old 03-14-2005, 04:10 PM   #17
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Re: Big Question is "Yes or No"

TH, forgive me for restating an old truth but in
taxable accounts it is a good idea to have all
distributions sent to a MM account. You can
cash checks on the MM account without causing
a taxable event, or reinvest in other taxable
funds to balance things out as desired. It
saves a lot of headache at tax time.

Cheers,

Charlie
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Re: Big Question is "Yes or No"
Old 03-14-2005, 04:41 PM   #18
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Re: Big Question is "Yes or No"

If no one likes these prices, who keeps buying this stuff? Can't have a transaction without a willing seller and a buyer.

And if it is time to stop putting money into the market, where do you put it instead? I've got no debt of any kind that I could be paying off instead and a fair amount of cash coming in every month...seems like a waste to leave it sitting in a ST bond fund or Emigrant direct at 3.25%...?
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Re: Big Question is "Yes or No"
Old 03-14-2005, 05:17 PM   #19
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Re: Big Question is "Yes or No"

I personally think it is OK (for me) to do a little
tweaking of my stock/bond ratio (witness my
reduction of 60% to 50% equity) in response to
hormonal urges, but the best policy for most is
to heed Mr. Bogle and "stay the course" ....
especially true for those with a long time in the
market ahead.

Cheers,

Charlie
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Re: Big Question is "Yes or No"
Old 03-14-2005, 08:19 PM   #20
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Re: Big Question is "Yes or No"

Quote:
TH, forgive me for restating an old truth but in
taxable accounts it is a good idea to have all
distributions sent to a MM account.
NOW ya tell me. Last year we all communed and decided that MM's were old hat, and using a short term bond fund as its replacement was almost as safe, with higher returns.

I was reporting back in that it wasnt entirely so...at least not for THIS poster...
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