Is now the time to be in cash?

The Barefoot Investor's latest email in mentions that Warren Buffett is sitting on the largest pile of cash that he has ever had (text included below). I'm quite heavily invested in the markets through mutual funds so I'd be interested to hear what other investors make of his assessment of Buffett's cash holding.

 

Buffet always has a war chest of cash ready to buy opportunistically, but I'm not surprised it is sitting very high at the moment given the massive bull run the U.S. exchanges have had for the last couple of years.

His thinking would be quite US focussed I imagine. Are your funds based on ASX stocks? If so do you think the ASX is in overvalued territory?

My feeling is ASX is at least fairly valued at the moment with at least some areas pushing a bit overvalued, but I think it would be a bold move to covert a big part of your portfolio to cash at the moment.

I have sold a few stocks of late to move some cash to the sidelines. Always nice to have some $ to go shopping if a big correction comes along!

 

In his book, the author advised to invest into shares rather than into property, so if you want to follow his advices, you would need to sell and invest to shares. And that investment should be done via consessional contibutions as much as consession cap allows. And to be debt free.

He's right in many suggestions/advices, but some claims are incorrect. For example when he said that it's better to live without credit cards. There are many options when you save more with CC than without, e.g. when CC rewards are higher than annual fees.

So read his advices with caution. Critical thinking is very important skill for an investor.

 

i love this bit:

“This table offers the strongest argument I can muster against ever using borrowed money to own stocks. There is simply no telling how far stocks can fall in a short period”, Buffett wrote.​

I am not as old, nor as experienced, nor as wealthy as WB but I have been harping on about this for years.

Totally agree and came to the same conclusion about 30 years ago. We only buy shares with cash and we do it via our SMSF.

 

I agree with some of the points made by @Blueskies


Don trump has stepped into a big trade war without even knowing it. In 2002 Bush tried tariffs and he realized the big mistake and almost immediately rectified it. Don trump has a tenth of Bush's intelligence.

With Russia stepping into the cold war days and captain ***** running United States, I think we are in for a wild ride and at least in terms of the stocks it will make sense to remain liquid.

 

No you should not be sitting on cash because Buffett is. In fact, if you actually had the chance to sit with Buffett I bet he would tell you to go and buy a S&P500 index fund and forget about it. That is the advice he has given in his will for what to do with his fincances if he dies before his wife.

Buffett makes his money by attempting to find and invest in undervalued businesses. He suggests that retail investors don’t try that too much or try to time the market. Also note Buffett has the challenge of being so big now it’s much harder to find things to invest in.

 

thats very generous of you ...

 

Mixture of AU, US and overseas stocks. I agree with your assessment of ASX stock prices. I'm not so sure how to assess the US.

 

I will also add that trump has a few powerful and wealthy friends in New York stock exchange.

I wouldn't be surprised if his tweets and decisions are designed to shock the stock market and therefore help his friends to buy or short the stocks before the news hits the markets.

In my opinion moving forward, given the possibility of trade wars and just general market sentiment, growth will be tampered and stocks will be dangerous territory.

My first preference would be to either stay liquid and get in and out of stock market on very short term investments OR buy assets. Gold, property and other assets.

While trump is in power anything is game and there is no guarantee that this guy wouldn't rock the boat more than what he has done so far.

 

It's easy, just look at what China is doing. At the moment their housing is cooling and there is further financial tightening on outbound investments by big property companies(we can see the effect as iron ore prices are going down again).

But the general economy is still stable as seen by the monthly PMI numbers from both consumer and business sides, though I expect them to be flat or trend down as China tries to slow down its debt expansion.

So until China's PMI and other economic indicators show otherwise, stock markets around the world will not have much of a correction/crash.

Locally I expect further weakness for ASX as commodity prices reverse and property sectors cools. Our 10yr yields have also been slightly lower than US treasuries for a couple weeks now and it might be pretty bad for stocks if carry trade reverses in a big way and capital outflows start accelerating. Surprisingly bond yields are still quite high in New Zealand, so money may flow that way.

 

Depending on what you mean by "property cooling" you may be in for a surprise.

With whats happening in the US and China as well as other parts of the world, interest rates are bound to stay down for a very long time.

Stocks are going to be volatile in particular in the US and while stocks are volatile it will be the assets that will do well especially during a time when interest rates will remain low.

 

@Humphrey : it really depends on your strategy. If your aim is long term compounding, then most of your portfolio should be in stocks. However if you are a value investor aiming for undervalued companies then a big cash position now would be best. During market corrections/crashes you can really pick up some nice cheap div paying blue chips like Telstra for cheap

 

That's what some people expect, interest rates to stay down for a very long time. HOwever FED is still on track to raise 3-4 times this year. It wont take much to tank the property markets here, just a 1% rise this year would do it, especially with Sydney/Melb sentiment starting to reverse.

and actually stocks have not been volatile at all the past year or so, particularly in the US, its just been a very long and stable record beating bull market, punctuated by just a week or so of volatility recently. Not even a 10% drop overall.

When interest rates do rise, most asset classes wont have much further upside as the easy money and liquidity will get "sucked out" of the system (aka deleveraging)

 

You dont need to talk about "past year or so" just go back the past month and see how stock markets were annihilated then come back and post your opinion. Deal?

 

obviously you havent finished reading my post lol..

 

No need, You are talking about "past year or so" which is wrong because the moment Trump was voted into the office stock markets dropped faster than you could say "hello charlie" and that was just one instance of it.

But I am ignoring that and I am simplifying it for you. Look at a month ago and then come back and say stock markets are not volatile. How fair is that?

 

Well here are the numbers

A month ago vs today for :
ASX 5876 vs 5909
DOW 24893 vs 24884

Looks like a pretty flat month, where's the volatility? If anything was volatile I'd say it was Bitcoin.

 

=

mr buffet can also walk in to banks and fortune 500 companys with cash on hand and his "portfolio" and blackmail them into offering him conditions i dare say no one else in the world will be able to achieve.. so technically he is not playing in the same "game" as rest of us.. buy at fair value and let the market do its thing..

op. what your essentially hinting is buffet is expecting the market to tank, in other words predicting the market which he never does.. a company yes.. but not the market


edit. i mean you = op not the person i qouet

 

the stock market may be volatile at some times, but in long_term it's showing very solid growth: DOJ: 30x since 1980. And it's very easy to sell it and transaction cost is near zero. It went rapidly up last year, so it needed some correction. Today index is same as in Jan.

 

You obviously haven't been in the market that long, with stock market there is always a reason to stay out.
What you want to do is evaluate each business on its merit and how it will fare over many cycles

War
Mother nature, earthquake, volcanoes
Interest rate
Trade war
Financial Crisis plenty of these
Recession, depression plenty of these too
Trump elect as President or some XXXX person elected as president
Scandals

Let just say you didn't want to buy WOW in the 80s because of recession and people spending less, since then it has face war, slow down, financial crisis, lose big money on Masters and many more

in all that times it paid you a nice income with better than inflation increase in dividend payment every year and how is the price now compared to the 80s , I can say the same for hundreds of other business