Holding Cash Until Coronavirus is Settled

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Polp
Posts: 18
Joined: Sat Mar 14, 2020 11:20 am
Location: Valencia, Spain

Re: Holding Cash Until Coronavirus is Settled

Post by Polp »

Good evening everyone,

I'm new to this forum but have been reading for quite some time. I started investing in ETFs in 2013.

Thoughts I've been having about this situation:

- "dollar cost averaging" might be a good strategy here since timing the market is very difficult. This makes sense in falling markets (in contrast to rising markets)

- I'll hold cash for about 1year of expenses and invest as much as I can save over the next months.

"@ertyu, your probably right. Patience is good advice, but it also happens to be one of my greatest weaknesses:) But in either case the stuff I'm buying at current PE ratios feels like a great bargain so there is no fear for long term losses. "

Please correct me if I'm wrong but you are comparing todays prices to earnings in the past. There is a reason why the price is falling, next earnings will not be like the last ones. I would be careful there.

ertyu
Posts: 764
Joined: Sun Nov 13, 2016 2:31 am

Re: Holding Cash Until Coronavirus is Settled

Post by ertyu »

@Polp if it makes you feel better, I recently read an analysis piece by a hedge fund manager which argues that "fair value" for the sp500 is at arond 2200-2300 and "undervalued" levels are at 1600-1700. I'm betting on 1700 being reached. If my bet is wrong and this is the stock market bottom, I will have missed it.

However, I do not think it is the bottom. We're still hitting breakers at exchanges every other day.

In the end, we all make our bets.

Or maybe this is just me loading up on GDX when it seemed "cheap" to me and then figuring out exactly why the phrase "don't catch a falling knife" was created. oooof, it hurts lmao

Polp
Posts: 18
Joined: Sat Mar 14, 2020 11:20 am
Location: Valencia, Spain

Re: Holding Cash Until Coronavirus is Settled

Post by Polp »

Yes, I don't think it's the bottom yet. If you take european indices as comparison they are trading at prices from 2013. Why wouldn't that happen to the S&P500 as well?

Nomad
Posts: 274
Joined: Wed May 16, 2018 5:23 pm
Location: UK

Re: Holding Cash Until Coronavirus is Settled

Post by Nomad »

This really is a perfect storm from a UK perspective.

While the equities are dropping around the world, the UK is particularly badly hit.
On top of that, the pound is losing ground against other countries...

I've not gone entirely in one direction, I still have half equities and I've now partially moved into overseas-based bonds.
When it looks like recovery is starting to happen, I will steadily sell the bonds to buy back into the now presumably very cheap equities.

Peanut
Posts: 497
Joined: Sat Feb 14, 2015 2:18 pm

Re: Holding Cash Until Coronavirus is Settled

Post by Peanut »

Peanut wrote:
Mon Mar 09, 2020 2:23 pm
@Guy: CV has started to affect the markets. Perversely, CV presents a great opportunity to time the market. But JMO I think it's early still to buy. I'm waiting for the second or third drop of more than 5%.
We've now hit the fourth, or maybe even fifth drop. Can't keep track. I spent 3.5% of the cash hoard buying in after the third, regretted it the next day. Will wait a lot longer now. Wonder if I should sell all the individual stocks I directly control (already sold half this month). Read a former IMF economist say this will be worse than the Great Recession.

Michael_00005
Posts: 98
Joined: Thu May 04, 2017 12:26 pm
Location: East coast USA

Re: Holding Cash Until Coronavirus is Settled

Post by Michael_00005 »

"I spent 3.5% of the cash hoard buying in after the third, regretted it the next day." We are better off training ourselves to NOT think this way. No one is going to pick the bottom, so why beat yourself up for not being able to predict the future. If you're buying at a good price, you got a deal! Simply hold and keep adding in increments when you find good deals.

There are two great opportunities right now: Buying quality stocks at a good price and then holding until this blows over. 2nd, buy dips and selling on the rebounds. For a portion of my funds I'm playing the rebounds, so far this is doing very well. The only difficult part I see is when to go fully into hold mode.

An investor with available funds, knowledge and understanding of the markets should be able to make large returns this year.

ertyu
Posts: 764
Joined: Sun Nov 13, 2016 2:31 am

Re: Holding Cash Until Coronavirus is Settled

Post by ertyu »

Help me brothers I have fomo. I am looking at the pump and worrying that they'll just keep pumping, that the market will become completely divorced from fundamentals, and that asset prices will keep rising while my stash buys less and less.

I am all in cash right now, with buy orders put in at what seem to me ridiculously low prices, but I worry that I have no position in actual assets if this thing rides up. Then if I do get a position, all the reasons why the economy is fucked suddenly come to the forefront and I get nervous to lock in any gains I made, so I sell out.

I love trading, it's fun, but dear lord I suck at it.

Lucky C
Posts: 528
Joined: Sat Apr 16, 2016 6:09 am

Re: Holding Cash Until Coronavirus is Settled

Post by Lucky C »

If you want to be a skilled trader/speculator then take the 5-10 years of study and practice that is required for any difficult skill before using a significant percentage of your money doing it. If you want to be an investor then study/practice that for several years instead. In the meantime pick a portfolio that tends to do well in times like these, such as the Golden Butterfly or the Permanent Portfolio, and rebalance annually.

Or keep doing what you're doing and get some unskilled friends to join in so that it is easier for the skilled traders to profit.

ertyu
Posts: 764
Joined: Sun Nov 13, 2016 2:31 am

Re: Holding Cash Until Coronavirus is Settled

Post by ertyu »

Wise words, @Lucky. I am growing by the day. I am now at the stage where I notice my panics and make posts about them instead of reacting and blowing myself up. Definite progress. Doing my best to keep my ineptitude in sight, have a sense of humor about how much I still suck, and not fall prey to dunning-kruger.

Lucky C
Posts: 528
Joined: Sat Apr 16, 2016 6:09 am

Re: Holding Cash Until Coronavirus is Settled

Post by Lucky C »

You already "sold high" so now all you have to do is "buy low". The hard part is, what is "low"??

If you believe in momentum/trend, you also want to buy when prices are starting to go up and sell when they're starting to go down. But when are they actually starting to go up??

If we're lucky we might have an opportunity where prices are low AND going up! This could take months or years. And of course there is a continuum of extremely high to extremely low in value and momentum so it never has to be an all-or-nothing situation.

Most people have ideas about what prices are low and what are high, and which prices are going to go up and which are going to go down. Most of them are wrong more often than right. You can find these people on places like Reddit and CNBC. Don't go to those places for learning, unless you're trying to learn from their mistakes.

---

Back to thinking about the original conundrum of holding cash until coronavirus is "settled", there are different timelines for when it might be settled, ranging from now to 12-18 months from now when there is hope for a vaccine, or herd immunity by then (unless it mutates into too many strains...). So one option is to dollar cost average over the next year or so. However psychologically you might be more comfortable investing more at a low price if prices go down more, AND you might be more comfortable if prices have risen steadily a few months indicating back to normalcy. So maybe it makes sense to "wade in" with something like only 1% of your cash this month, 2% next month, 3% the month after, and so on until your cash allocation is down to the level you want it. Worst case is you miss out on a few months of gains which in the grand scheme of things doesn't matter much.

Generation-X
Posts: 329
Joined: Mon May 06, 2013 4:43 am

Re: Holding Cash Until Coronavirus is Settled

Post by Generation-X »

To the OP:

Before talking about investing, are you in a position to invest?

Do you have any debt?

Do you have adequate savings established to weather through a financial storm in a jobless situation to leave your investments alone?

If any of the answers above is yes, then I wouldn't worry about investing and begin with elimination of debt and establish a large savings first.

One can get by life perfectly fine with savings alone by living below their means and being consistent when saving.

All forms of investing carry risk, and one must be prepared to take the whole loss when investing. Therefore, only invest what you can afford to lose.

ChickenCoop
Posts: 32
Joined: Thu Jun 21, 2018 3:45 pm
Location: Australia

Re: Holding Cash Until Coronavirus is Settled

Post by ChickenCoop »

I have no idea how bad this is going to get. What I do know, is the last 9 nine Bear markets averaged 14 months in length. We are only 1 month into this one. I will probably start DCA'ing in from about the 9th month, around November, at 10% per month.

eregal
Posts: 9
Joined: Sun Dec 02, 2018 12:43 pm

Re: Holding Cash Until Coronavirus is Settled

Post by eregal »

Lucky C wrote:
Fri Mar 27, 2020 6:00 am
If you want to be a skilled trader/speculator then take the 5-10 years of study and practice that is required for any difficult skill before using a significant percentage of your money doing it. If you want to be an investor then study/practice that for several years instead. In the meantime pick a portfolio that tends to do well in times like these, such as the Golden Butterfly or the Permanent Portfolio, and rebalance annually.

Or keep doing what you're doing and get some unskilled friends to join in so that it is easier for the skilled traders to profit.
100% cash too. I have been comparing using portfoliocharts.com for an unhealthy amount of time over the last few years.
Golden Butterfly and Permanent Portfolio are definitely my favorites, with a slight preference for Golden Butterfly.
However, they keep between 25-40% in bonds. I can't wrap my head around buying bonds with negative yields because:
1) I'd be losing the invested capital when interest rates rise (especially with Long Term bonds), and I don't think interest rates can go much lower than EU levels before being super harmful to the economy in general.
2) In the event of stagflation or deflation, they're not the good assets that hedge the situation.

What portfolio do you think might do reasonably well in recessions with 0 or negative interest rates?

zocab
Posts: 28
Joined: Fri Jul 26, 2019 1:04 pm

Re: Holding Cash Until Coronavirus is Settled

Post by zocab »

eregal wrote:
Sat Mar 28, 2020 11:19 am
100% cash too. I have been comparing using portfoliocharts.com for an unhealthy amount of time over the last few years.
Golden Butterfly and Permanent Portfolio are definitely my favorites, with a slight preference for Golden Butterfly.
However, they keep between 25-40% in bonds. I can't wrap my head around buying bonds with negative yields because:
1) I'd be losing the invested capital when interest rates rise (especially with Long Term bonds), and I don't think interest rates can go much lower than EU levels before being super harmful to the economy in general.
2) In the event of stagflation or deflation, they're not the good assets that hedge the situation.

What portfolio do you think might do reasonably well in recessions with 0 or negative interest rates?
I live in a country with 0 to negative yields. Our "bond" holdings are actually held as cash for the time being.

Lucky C
Posts: 528
Joined: Sat Apr 16, 2016 6:09 am

Re: Holding Cash Until Coronavirus is Settled

Post by Lucky C »

Golden Butterfly and Permanent Portfolio are only 20-25% Long term bonds. You could replace the 20% short term bonds of the Golden Butterfly with cash. Otherwise if you're following those portfolios you should live with that low yield risk because we don't know what inflation rates will look like in the future. It seems like inflation will grow but if we're wrong and enter a deflationary period we will wish we had more long bonds and less gold. That's why those portfolios have low volatility in a variety of environments.

If you really want to tilt more towards an inflation bet you could put something like 5-10% towards commodities other than gold, like silver, oil, agriculture, or a blended commodities fund like PDBC. But this increases your correlation with gold prices and increases portfolio volatility. Bonds also have momentum going for them currently whereas commodities do not.

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