Is cash now king?

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Permalink Reply by AlRow on July 1, 2008 at 17:36

I saw on lateline last night three talking heads discussing this and the consensus seemed to be that now was the time to get out of shares and into cash. It will be interesting to see how the super funds go
Surely the best? way is to have a balanced portfolio
Cash Property and Shares

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Permalink Reply by JG on July 1, 2008 at 18:12

You'd think that.

But I've got a graph of SuperRatings data showing the growth options (mostly Australian equities) doing consistently better over the last ten years:



Risk is rewarded in the long term (although I'd hate to have been in the High-growth category so still some need to keep it real).

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Permalink Reply by JG on July 2, 2008 at 1:03

And can I just say that in over a decade of thousands of online discussions this is the first time anyone's brought a graph with real data...

And it's ME!!!!

(Sorry just super impressed with myself, total dumb luck that I'd had need to make the graph last week for an unrelated project)

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Permalink Reply by Manish Dev on July 2, 2008 at 12:29

While it's true that shares have historically performed better over the long term, smart money tends to be overweight in cash in bear markets. No point sitting on a falling portfolio when you can get 8% on your cash. As soon as thin pick up, it's easy enough to move it back into shares again.

The trick is you timing...

Manish

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Permalink Reply by JG on July 2, 2008 at 12:47

Indeed, have you seen the research on "timing the market"?

Unless you're better informed than the merchant banks and trading houses with all their computers what tends to happen is you crystalise your losses at the bottom of the market and then miss the rally and end up buying back in near the top of the market.

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Permalink Reply by Manish Dev on July 2, 2008 at 13:55

Yes, "time in" the market, rather than "timing" the market. But there are moments when it's best to be out of certain investments. Personally I've been out of shares (except for mining stocks) since August last year and in cash - I'm 20%+ better off for it. I'm sticking with miners - Jim Rogers warns that there's more pain to come for the US dollar AND to stick with resource stocks. I'm with Jim.

But you're right, most of the time you're better off just sticking with shares over the long term. I have lost money in the past selling at the bottom and buying back in at the top...

Manish

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Permalink Reply by Bandwidth on July 23, 2008 at 10:53

Given the current write downs by merchant banks and trading houses I question how they use this "better informed" position. Remember if they are an Index fund they only have to perform better than the index so if the index is down 20% and they are down 19% they have met their goal. My goal is absolute return than referenced return.

It is worth reading a book "trend following" by Michael Covey to get a feel for how these trading houses operate

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Permalink Reply by bvbfan on July 23, 2008 at 9:40

8% is good if you believe inflation is ONLY 4%.

Take a look, most everyday items are up much more than that the past year.

The only real money has been beating most large markets by a health amount since 2001

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Permalink Reply by Miffy on July 24, 2008 at 12:03

This is true, taking inflation into account (now running at 4.5%) you're not making a lot on your cash account. But at least you're not going backwards, which would be the case (to the tune of 4.5% p.a.) if you just sit on your money and don't put it into cash. And it could be much more than this if you get it wrong on the stockmarket!

You're right about the cost of things being on the rise. Probably best left to the discussions on these pages:

Cost of living - petrol, food, etc.

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Permalink Reply by Bandwidth on July 27, 2008 at 11:43

Hello Miffy

Being wrong in the stockmarket is certainly one outcome, being right is another. Making in money is the ultimate.

My experience is that when I focused on beith right or wrong I did not do too well.

Once I started to cut my losses when the share went opposite to what I expected and let the profits run when the share went as expected the whole game changed for the better

Our education system is all about being right or wrong. People make money in business and the market being "right" only 40% of the time.

Look at it this way if when I am "wrong" and I get out when I am down 15% and when I am right I have an average profit of 45% which is 3 times my cut loss. Being "wrong" 60% of the time makes money. Losses are part of the business of making money in the share market, much like "at or below cost sales" in other businesses

The hardest lesson for me was "I am not in the market to be right or wrong. I am in the market to make money"

When I can't find a good share then cash is king

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