Read? The best investors sit on plenty of cash
The most famous, of course, is the legendary financial guru Warren Buffett, whose company, Berkshire Hathaway, sits pretty on a war chest of US$70 billion (S$94 billion) as at the end of last year.
His partner, fellow billionaire Charlie Munger, reputedly advised investors: "There are worse situations than drowning in cash and sitting, sitting, sitting. I remember when I wasn't awash in cash - and I don't want to go back.
And they are hardly outliers in that sense. A study of nearly two million households with investment portfolios of US$3 million or more in 2015 by United States Trust Company, one of oldest trustee companies in the US, showed that
eight of every 100 respondents held at least 50 per cent of their portfolios in cash. A further 14 in 100 had at least 25 per cent in cash, while another 40 out of 100 held between 10 and 24 per cent of their portfolios in cash.
CW8888
For the rich, there may be no urgency of cash flow to meet yearly household expenses so it is NOT the case of financial independence when passive income just exceeds household expenses with the need of staying mainly invested for investment income.
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Retail investors have an advantage over professional investors --- we don't have to play if we don't want to ... There's no need to keep dancing even if the music keeps playing & hot ladies are all over you to drag you onto the dance floor! Hohoho!!!
ReplyDeletePros need to constantly be "doing things" ... for their livelihoods depends upon it ... even it is merely "zhui kong" action & some cut-and-paste charts to convince hungry bei kambings to attend the latest & greatest Sure Win master guru course...
I know a portfolio manager acquaintance & she basically said the max limit for cash is 10% even when all assets are priced at 100X PE (various mandates may have different levels of max cash levels, but usually not more than 10%-15% unless it's hedge fund or private equity).
The concern for people like her in the industry is looking different from peers. In an expensive bull market, your performance will suffer vis-à-vis competitors if you up your cash positions ... and customers start moving elsewhere. AUM is the raison d'etre for their $2++M a year salaries. They themselves may be sitting in cash up to their eyeballs, but they will continue to sell "investing" to customers!! Kekekeke!!!