As of yesterday, cash is up to around 50% of the entire portfolio.
I know I mentioned on Monday that it was at around 30%. I’ve been eyeballing how strong the bounce from the bottom of the recent correction has been. I guess I’m not feeling as great about any sort of continued melt up. Upon reflection, I think I’ve been trading in and out for a little while because I don’t believe deep down the narrative that everything is rosy and the market will continue to march higher and higher. So I’ll sit in cash, earning about 0.9% interest and wait.
Stocks are expensive relative to history. The 10 year US Treasury continues to go up. I will be cautious. If I’m completely wrong, as I said 3 years ago, I will just index everything to the total stock market and forget about playing fund manager.
Only advice I have is to do as I say (index, DRIP, and forget) and not as I do (what I’ve just written about).
So I wrote this super long, rambling post exceeding 1000 words, listing all sorts of various trades and fairly esoteric math that only I would probably understand about opportunity cost gains and losses in the portfolio. I realized at the end of it, I didn’t really want to hit that publish button. So I think the compromise is to keep this as simple as possible.
How insightful is that!? Have you ever heard that before? I bet half of you just had some sort of financial-religious experience and half of you have rolled your eyes so hard that you’ve gone cross-eyed.
Here we go again: another round of doom and gloom as the markets swoon. The finger is being pointed at China for their volatile stock exchange and circuit breakers stopping trading there. Some speculate that it is a sign of China slowing down. Whatever. The market was volatile back in October 2014. It was volatile in August 2015. It was volatile in mid-December 2015. And it’s volatile now. J.P. Morgan released an informative little “Guide to the Markets” at the end of the year. Yes, the same J.P. Morgan that I took vast amounts of clippings from the CEO’s letter in the 2014 annual report. But that is neither here nor there. Here are some slides I found interesting. Perhaps it will provide some perspective on all this doom and gloom prevailing in the financial media.
I’ve only been writing since 2013 so I haven’t been able to go through blogging during a real market correction like in 2008. Some of the best businesses in the world are starting to look very attractive at fair-to-below-fair value. Coca Cola, Johnson & Johnson, Berkshire Hathaway, Exxon, Chevron, etc. – high quality large cap companies that should make the foundation and backbone of any investors’ portfolio. These are some of the greatest companies in the world, minting money year after year after year. This is the time to go pick up some ownership in these incredible businesses. They are sitting there at fair value, or less than fair value. Could prices drop even further? Sure they could: you should expect +30% declines in quoted market price of your holdings in the markets. But remember, price ≠ value. And in this world, getting fair value for ownership in some of the best businesses in the world is not some great tragedy in life.
I felt like a sleep deprived kid on Christmas morning. I was recently perusing the Credit Suisse Global Investment Returns Yearbook 2015 and I was irrationally giddy. Pouring over the research, I couldn’t contain my excitement at the amount of data and graphs that were available. For example, does it surprise you that the “sin” industries of tobacco and alcohol were the best performing industries of the previous century in the US and UK? Did you know their was a high tech shakeup in the 1800s where the scrappy, newborn rail industry turned the old canal industry upside-down on its head? I’ll give you a rundown of the most interest aspects of the report.
Coca Cola, one of the bluest of the blue chips. This is a foundational pillar of any portfolio. Through good times and bad times, Coke pumps out profits and generates wealth for its owners. It’s an easy business to understand: sugar water. It is a fantastic business. There is nothing quite like it. The returns generated by the selling of sugar water is incredible – consistent return on equity in the 20% range, which means loosely that for every dollar of sugar water Coke sells, they are able to generate 20ish cents of pure profit. But I’m not here to give you an in-depth analysis of Coca Cola today. Instead, I wanted to expand on how using the earnings yield can help you think about opportunity costs. Remember that post on how to think about an asset? Quickly peruse that again as it will be a useful primer for what I am about to go over.