Our cash ratio continues to go down. We are currently at 17% cash. This, despite cash trickling into the portfolio. Equities are doing so well, they are quickly outgrowing the expanding cash. What to do about the cash. - I have a long standing limit order to buy VOO. - We have sufficient quantities of our core holdings but these will be expanded, if they should take a significant dip. - Lastly, we are just starting out retirement. The money very well could end up simply being spent by increasing the burn rate for a few years. This probably wouldn't be the worst case scenario. If I was younger than 45, I would buy VOO as money came in and stay fully invested. At my age, I need a significant cash buffer to defend against sequence of return risk.
YES....starting out retirement that is self funded is NOT the time to take abnormal risk. Three to five years of cash or cash equivalent is a good idea till you see how things are going to work out. From what I have seen most people underestimate their retirement needs and overestimate their ability to take sock market risk.
Here is a direct presentation of some old ideas. It's brutally rudimentary so don't expect to learn anything. Honesty is the most important characteristic of management. If a company is run by people who are dishonest, there is no amount of profit that is going to make it's way to the owners. Check the executive compensation last year during the pandemic. If they paid themselves at record levels when the economy was on fire, you've got a company run by assholes who are going to take more than their share of the owner's money. It's just that simple. The second most important management trait is work ethic. Are they innovating? Are they pushing new ideas? This is key, after honesty. Lastly, how smart are they? Can they identify trends and resist responding to every micro trend? It's good to be smart but this is less important than work ethic. Valuing intellect as most important is a mistake nearly everyone makes. Here's the thing. A well run company in a reasonable economy will produce a profit. A company that issues excuse after excuse for losses every quarter is either run poorly or executives are siphoning the money. I owned a real estate company (not a REIT) that was headquartered in Calgary, AB. I bought it because they owned tons of mini malls and some property I felt was well positioned to produce. These guys bragged about record year after record year, and yet the profit never broke 4%. At the time, they were distributing something like 2.3%. I sold it in 2016, before oil tanked in 2018 and took out the entire market. A company that can produce 4% in a hot market is not a company I want to own, long term. A little digging revealed ridiculous executive compensation. I try to understand this, before buying a company, but sometimes it can be difficult to quantify. It really comes down to honesty. If the executive is slippery, money will be absorbed and very few investors will be able to detect where it's going by reading the books. It's not that difficult to figure out who is good and who is not. Management who cut back their bonuses during the early pandemic period is a good start. Once you find someone worthy of your trust, be patient with them. They are your best bet in the long run.
With us about to live off our nest egg, I've been thinking about safing money. In my younger days, I was pedantic about remaining 100% invested. Small amounts of cash were inserted into a money market fund while I looked for value. In the 90s, there was a money market fund that paid 3% with no fees. That same money market fund now pays 0.2%. I was building a bond ladder, thinking I could keep turning over the ladder on good years and spend the maturity payments on bad years. The thought was a 5 year ladder but I only have three rungs on the ladder with one coming to maturity at the end of this year. My longest term bonds mature in October 2023, if the company doesn't buy them out before that. What's more, my 2023 bonds are currently trading for $114 on a $100 note. They only pay 5.5%. It doesn't look like they will convert so I would be best off to sell those bonds at the premium and put the money into a 24 month GIC. In two years time, our current bonds will be gone. Here is what I've come up with. - For short periods of time, cash is not expensive to own. - For 12~24 months, it isn't difficult to find GICs that pay 3%+. Oddly, yields go down after 24 months. - Buying bonds on the secondary market comes at such a premium, there is no point. - I am monitoring new issues like a hawk and will take a big helping of any half-decent bonds that come along. - For periods of 3 years and beyond, I have not found anything that will return better, on average, than a dividend bearing REIT. A decent REIT will pay 7% and will also gain 5~7% per year. I hate to blow up our REIT balloons any larger than they already are but it appears that is how it's going to go for medium term money.
The long irrelevant Wilshire Buffett Indicator is now 206%. When I have an amazing day like today, my thought is not about how great I am or that I should increase my personal spend, it is thoughts of the untenable market valuations and how I can defend my nest egg. I have no misconception of being able to perform like this for the next 25 years. If our returns continue like this, I will wish I had started flying private a lot earlier. That is not hyperbole. I don't have any idea of when or how these gains will stop but it is extremely unlikely the market will maintain these gains for decades longer. It is possible we could enter a period of high inflation and low market returns, bringing the market into a state of reasonableness. If that happens, people who invest in distributing stocks will do very well. It is also possible we could have a historic market crash, snapping valuations into a reasonable state in the blink of an eye. The smart move, for me, at a time like this is to own companies that have valuations that are at or below their corporate equity and return money to their shareholders. I would buy our companies, based on how well they are run, if they were not publicly traded. ... and, no, they are not going to double in value every 4 years. They will be lucky to double in value once per decade, after being adjusted for inflation. I am absolutely pleased with that level of return.
This article triggers some interesting thoughts. "We have 8 million saved for retirement, are in our early 50s, and want to retire early but are worried about healthcare expenses. What can we do?" https://www.marketwatch.com/story/w...ealthcare-expenses-what-can-we-do-11626826365 Breakdown: They have 6M in unregistered wealth. They have 2M in their 401K. They own their home with no debt. They are looking for $100K to 150K of annual income. My analysis is different than the author of the article to the point that I feel the author is off the mark. I believe there is a very high chance they are index investors. They have probably owned VOO for 30 years, adding a healthy chunk every month over that time. There are only a couple of ways to achieve that level of wealth and holding the S&P 500 long term is one of them. I doubt they are value investors or they would not be asking a columnist a basic financial question. So... I would say, yes, they can easily afford to retire at the ages of 50 and 52, if they continue index investing with perhaps a slightly larger cash buffer. Or, at least, let the cash from dividends build for a year or two. Gotta say, I know one hell of a lot of career people who are aggressive traders. They are all getting rich beyond their wildest dreams and many of them are going bankrupt. All are losing, at least, a bit of money. If you care about stroking your ego, trade. Maybe you have a gift and are the best trader around. If you care about building wealth, buy VOO, keep buying VOO, and do that until you retire. Never sell. If there is a market and/or economy crash and you are sufficiently fortunate to keep your job, save even more aggressively during the market down turn. It's that simple.
For what it's worth, I have been using NWH-UN.TO like bonds in our Canadian accounts for the last 12 years. I'm a bit concerned about management lately but, for now, I will continue to use it to hold funds. I juiced it up in 2020 at a 40% discount so now we have as much in it as we care to risk.
Patience. I'm expecting anemic financials out of Tesla but it will be backed with a strong message. They have two new factories about to come online and FSD is in very late beta. I don't know how the market will react. If Tesla stumbles, I will pick some up. I doubt it will happen but I am ready, if it doesn. If Tesla remains strong or even surges, I will let it go. There are other companies I would be pleased to own. - be patient - be prepared - be ready to pull the trigger on opportunities I feel the same about a few companies. This is why I will succeed. If I am unable to pick up Tesla at a bargain, I will find another using the same techniques. All it takes is patience.
“People want an authority to tell them how to value things, but they choose this authority not based on facts or results.” - Michael Burry People will follow a few individuals who proclaim themselves to be superior, even when ALL evidence suggests these people are inferior. When the self aggrandizing a-hole proves himself to be a clown, these people will look for another self aggrandizing a-hole to follow. Think for yourself. Accept failures. Learn from them. Do your best. You can outperform nearly everyone using objectivity and an abhorrence of group think. Consider me, as an example. We have done very well. I've made plenty of mistakes. I've studied a lot of companies, businesses, markets, and management teams. On rare occasion, I have discovered and invested in companies that have been found to have above average honesty and competence. In fact, I'm confident we have done better than pretty much anyone declaring themselves an expert or CMA bearing authority. Do not consider this to be me declaring myself amazing. I am not. This is a declaration that we have done well using my energy and thought process while rejecting crowd think, dismissing all unproven declarations of superiority, and simply doing my best to find my way. With all of the missteps, we have managed to stump up a pretty OK retirement nest egg. What's more, a lot of people can do just as well as we have done using a similar (but doesn't have to be identical) approach. To those of you who have done better than we have, I tip my hat to you. Well played. To those who have done worse, I encourage you to do the research, believe in yourself, and find your way to success. Believe in yourself because you are better than the person who declares themself better.
WBI = 201.3 We are at the end of an epic month. Our core holdings moved counter to the decline, yesterday. I take that as a mood of pessimism. I don't hold good businesses in our core because I'm pessimistic. I hold them because I believe they are well run, solid, companies that will perform well through most economic conditions. Meanwhile, I go out of my way to ignore hot tips and stocks that seem to be rising quickly. My goal is to look past the flashing numbers and do my best to see the business the stock is founded on. Meanwhile, our cash moves into the mid 20% range and we are holding steady while the fourth wave of COVID ramps in North America.
The dual opposed piston engine being developed by Achates power is scheduled for consumer production in 2027. The military has a production run of engines which use the design scheduled for 2024. As great as I expect these engines to be, it is difficult to see how they will be very relevant to the consumer by 2027. Perhaps they will provide significantly cleaner power for generators and military vehicles which are not good candidates for electrification. This means it is full speed ahead for EVs. To be fair, it always was.
WBI = 201.5 It's a down day. Even our portfolio is down a tiny amount. One of the companies I'm trying to bottom feed is down but the lowest sale is still $0.03 above my long term limit buy order price. That price was determined with a formula that has a subjective component. I could easily bump my order by three cents and make it happen. As much as I'd like to own a bunch more of a good company, the price was determined and I don't chaise a buy. I believe we are entering volatile times. Hopefully, my buy order will connect, however, if it does not there will be other opportunities to buy good companies.
I sold two tranches of bonds, this week. In both cases, I got the exact total return I would have gotten, had I held them to maturity. I just got it right now. What is wrong with people? That leaves me with one tranche. The last cache of bonds also has a sell order for the equivalent of the total return. It has came somewhat close to my limit order in the spring my ask is currently far from the spread so it seems very likely I will hold it until 2024. The point being, either outcome is a win for me.
