Saturday, March 2, 2013

Sitting on Cash

On a daily basis I read as many personal finance and investing blogs and articles as I have time for.  One that I read in the recent past (which sadly I did not bookmark) listed a number of key characteristics that make a successful investor.  One from the list was the ability to remain patient and hold cash for long periods while waiting for opportunities to arise.

I'm not sure that I would call myself a successful investor yet, having dabbled in individual securities for less than a year, but I was grateful for the reassurance.  Since the change of the calendar to 2013 I feel like I've struggled to find many values.  In fact in February I sold two of our holdings (CLF and PBI).  After reflection I felt like I had not bought them at a compelling entry price and decided to get out at a small gain while I had the chance to do so.  I may look to purchase these again in the future if the price is right.  However those were two of the higher yielders in our portfolio and as such our average dividend yield has dropped considerably.

I've made only one new purchase in calendar year 2013.  I have been maintaining a watch list of 20+ companies I'd love to own, but all of which are trading at valuations that make me hesitant to invest.

It's hard to be disappointed in a steadily climbing market, since the bulk of our investments are held in long-term retirement accounts which have increased in value along with the major indices.  Meanwhile, our FI portfolio is stagnating a bit as we have not been putting cash into action in recent months.  I'll continue to research potential investments and be ready for any opportunities that arise.  Should prices drop in the future, it's nice to know we are prepared with cash on hand.

5 comments:

  1. I need to work on holding some more cash for special opportunities that came up. The only reason I find it hard to do is that you never know how long it could take. I know Buffet had a period where he just didn't buy anything because the market was inflated, everyone thought he had run out of ideas, but when the market's dropped he was scooping up everything he could. I've been leaning more towards selling puts right now as long as the return is good and I can get a cost basis less than my fair value calculation.

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    1. I like the idea of selling puts but haven't put that into action yet. I think it might be an especially advantageous strategy to use for a stock which doesn't pay dividends, since you're creating your own income stream from it.

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  2. It's tough to be patient enough to sit on cash for too long. I know when I've had large amounts of cash, I'm so used to not buying stocks that I don't buy aggressively enough when opportunities arise. I've since made a personal rule for the maximum level of cash I'll allow myself to hold.

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    1. Sounds like a reasonable rule. I'm actually eager to invest this cash, but the companies I want to buy don't align with what is a value in the market right now, in my opinion.

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