Been hearing lots of debate regarding holding 100% cash or not in this economic climate and happened to read Buffett’s letters this morning.

A reminder to never go full cash or listen to noises in the market, and always stay invested because cash purchasing power eroded over time.

WHY CASH ISN'T KING

EXCERPT: THE "TREASURY BOND BUBBLE" AND WHY CASH ISN'T KING
The investment world has gone from underpricing risk to overpricing it. This change has not been minor; the pendulum has covered an extraordinary arc. A few years ago, it would have seemed unthinkable that yields like today’s could have been obtained on good-grade municipal or corporate bonds even while risk-free governments offered near-zero returns on short-term bonds and no better than a pittance on long-terms. When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary.
Clinging to cash equivalents or long-term government bonds at present yields is almost certainly a terrible policy if continued for long. Holders of these instruments, of course, have felt increasingly comfortable – in fact, almost smug – in following this policy as financial turmoil has mounted. They regard their judgment confirmed when they hear commentators proclaim “cash is king,” even though that wonderful cash is earning close to nothing and will surely find its purchasing power eroded over time.
Approval, though, is not the goal of investing. In fact, approval is often counter-productive because it sedates the brain and makes it less receptive to new facts or a re-examination of conclusions formed earlier. Beware the investment activity that produces applause; the great moves are usually greeted by yawns.

Warren Buffett letter’s to shareholder in 2009.

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38 comments
layers

how to hold 100% cash when u are holding investment. unless u wake 1 day and realize all your analysis for your long counters is wrong and sell them

luckyman

Think this issue of whether holding (more) cash or staying invested is better has to do with the concept of market timing.

For those who do not believe that one can consistently time the market (as in get into the market by buying low and exiting the market by selling high, rinse and repeat), staying invested (which does not necessarily mean holding zero cash with no warchest) is the superior option. This of course assumes that you have done due diligence and bought stocks which are at least stable and hence likely to weather downturns in the economy and stock market.

This argument between those who advocate holding cash or staying invested therefore turns on the difference in whether you perceive and believe yourself to be a trader or an investor.

Those who are well-read will probably be able to produce studies showing that those who stay invested for the long term tend to come out better than those who try to time the market. The caveat to this is whether these studies which are based mainly on the US market will be fully applicable to our local stock market.

My 2 cents.

PomeloFarmer

Reply to @luckyman : well said!

FeelsBadMan

We are neither kings nor the shareholders of Berkshire Hathaway.

In Buffett's quarterly shareholder letter, he said it has been difficult to identify acquisition opportunities to wisely invest Berkshire’s $116 billion in cash and bonds to generate earnings growth for investors.

layers

Reply to @FeelsBadMan : ya lor. buy sub par also better than sit in bank

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PomeloFarmer

100% vested vs 100% cash, each has its pros and cons, different school of thoughts
no right no wrong, at the end of the day if u make money u are right
if u dont make money u are wrong
a few years later time will tell, for now we can all say as much as we want but see in the end who makes money... maybe both ways also huat? lol

davidtan1201

I wonder why ppl never reflect on past historical data and maybe learn something from it. Some say now STI is very very low and should not move lower anymore... BUT if u look at 2015 when there is no major crisis (in 2015, there was the small little crisis of Quantitative Easing ceasing) and you know that perhaps STI could head lower. Right now is interest rate increasing = QE stopping same effect.

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_Kitsune_

Reply to @davidtan1201 : Treading with caution should always be front and center. But as it stands, the index could always go lower, the economy could always worsen.

Could. You don't know for sure if it will. Do you think it is prudent to always go into a trade or rather hold off due to that 'what if?'

Of course I'm not advocating mindless optimism. That would be silly.

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koloiewo

Bear market is good to be 100 % cash

koloiewo

Reply to @_Kitsune_ : not 100% lah, many things you can read to make a good guess. read the technicals. look for consolidation and support levels as they form once the lower lows become lower highs. also read the fundamentals of the local and global economy. GDP growth has not completed its shrinking and has not even begun in the US. also look at top and bottom lines of local companies. also look at performance of different sectors. also look at interest rates and yield curve in the US etc, also look at how the FAANG stocks market leaders etc... need to consider all factors... u get the point lah

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diyquant

We should move on.... LOL

losemoneyinvestor

Reply to @diyquant : you started this mess. clear it!!!

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losemoneyinvestor

Everyday we talk about the same thing. Hahaha

losemoneyinvestor

Reply to @DareDevil : We are talking about money! Fiat money!

Haha.

Cash is not an important subject in SG. we are going CASHLESS remember? lol

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PomeloFarmer

At the end of the day no right no wrong going how much % cash, just be clear of what you are doing and what the pros and cons are

I am confident of my investing method as i had been doing the same for the past 12 years and for the last 3 crisis, as long as i continue to see good returns i will definetely stick to my strategy and ignore the noise

PomeloFarmer

I believe in warran buffett and peter lynch principles of staying mostly vested, only when market very expensive, nothing to buy then cash inflow keep in warchest
Had 200k in ssb and took all out when the STI fell from 3600 down to 3200 level
At that level many counters that i liked were cheap enough so i was a buyer and bought all the way down from 3200 to 3000 and i used up all my cash, warchest whatever already

No one knows 100% when is bottom or when is cheapest

I rather be 100% sure that i bought great companies at good price

Than risk timing the market and end up failing to purchase these wonderful companies at all or overpay for them

Cheers

davidtan1201

Reply to @PomeloFarmer : Maybe u shd refer back to historical data for some hint of low? Look at 2015 chart

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