What has playing safe led me to

Discussion in 'Investing' started by Alex Moon, Aug 6, 2021.

  1. Alex Moon

    Alex Moon New Member

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    "Great stocks come and go, my cash stays forever."
    Some of us probably said/done similar things below.
    Ready for some stories today? Grab some wine over.

    ---Chilling Friday---

    “This stock is way too overpriced”
    “I think the market is gonna crash soon”
    “I’m holding my cash for a dip”
    “There’s an inflation”

    My story

    I used to pride myself as a passive investor, always building my portfolio based on fundamentals and not taking a single risk.

    Here’s what I did during and after crash - Exactly nothing.
    During the 2020 crash, when all the stocks were at a discounted price. I fear worse dips will come after; When the stock price came back strong in just a few months, I fear a correction is coming; When major indexes reach all-time high, I fear inflation and market crash (I’ve seen “market crash is coming” type of video/article like every week since January). I missed out on many great opportunities out of unnecessary fear.

    Now, you always hear failure stories from trading without risk management, but you don’t often hear safe players’ bad performances. As a reserved investor, I encourage you guys to party a little more. We have to go out there every once in a while to try some different strategies to learn.

    It doesn’t matter when the crash will hit IMO, all we need to do is have 20% of cash available to buy the dip and sit on it.

    What do you guys think? I’d love to hear how you deal with stocks at an all time high.
     

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  2. TomB16

    TomB16 Well-Known Member

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    I hear about conservative, bad, performance, all the time.

    I used to work in the financial sector and the mind set was different. Returns of 4% were considered amazing, 10 years ago. If you asked about market returns, they would say, "Oh, sure, the market posts amazing returns but nobody wants to gamble their money away on the market." They would say "the market", like it is a form of evil.

    Last year, a friend of mine shared a performance letter sent to her by her investment advisor (note the "o"). It showed 41% return. Looking at the smallest print on the page showed that is lifetime return and she has had her money with this guy since 1996. What's more, she is delighted with this level of performance.

    -----

    When you read about someone who has amassed a surprising amount of wealth, let's say $5M, they are always S&P 500 holders. Always. Because of my job, a couple of times per year, I would find myself in the lunch room of a branch of a financial institution. A public facing worker would tell a story about someone with big money. It was always the same story with only small variations.

    "An unassuming couple came in. They wanted to know if they had enough to retire. I had a look at their retirement savings and they had $5M! (the number is always 2~5M) These people didn't know anything about investing. I mean, the guy was wearing plaid. For God's sake... PLAID! So, I told them 'Well, you may have enough but there are always pitfalls and dangers.' You know, like I tell every person who wants advice specific to their situation."

    If you ask what the couple held, the CSR will try to evade the question but can be pressured to reveal the couple had a system whereby they regularly saved a reasonable amount of money and put it into the S&P 500. They did that from when they first started work until the age 60~65, when they walked into their bank to ask if they possibly have enough to retire.
     
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  3. TomB16

    TomB16 Well-Known Member

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    I'm currently at 23% cash and it's building.

    I don't sell when the market is high but I do let cash build. Between 2010 and 2017, I had 0% cash.

    I use the Buffett indicator to determine how much cash to have on hand.

    Based on my market estimations, I should be at 40~50% right now but I always buy a company when I see value, regardless of market conditions. A couple of value gems have come along recently that I am very pleased to own.
     
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  4. TomB16

    TomB16 Well-Known Member

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    I apologize for not answering your question directly.

    If you are 10+ years away from retirement, you should have low to no cash. You will lose far more trying to step over a crash than you will gain by staying in the market.

    The last 7~10 years before retirement is when you need to shift a portfolio into a safer position with more cash.

    Once you retire, you need to play it pretty safe. At least, for the most part I want to always have three years of cash on hand but we currently have a lot more. If a crash occurs, I will buy heavily but I can never go all-in again. I will not go below 3 years of cash.

    We are recently retired. Even now, I don't mind taking some risk but it will be carefully controlled.
     
  5. MrMike

    MrMike Member

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    I'm 15 years away from retirement. You always hear to hold some cash in case of a "sale" but I was never into that. I always thought of the dividends I was giving up each month by not having that money invested. What I prefer to do is have available credit in my HELOC for when those:
    • "once in a couple years" event happens (Nov 1, 2019 - down 11% when McDonalds CEO fired for violated company policy)
      or
    • "once in a decade crash" event happens (Nov 2008 financial crash, covid March 2020)
     
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  6. TomB16

    TomB16 Well-Known Member

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    Golden words, Mike. :thumbsup:
     

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