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6 hours ago
Can we look at cash rotting in the bank as a "separate" asset investment from stock portfolio?
ReplyDeleteCash: A Call Option With No Expiration Date.
http://www.investopedia.com/articles/investing/042613/cash-call-option-no-expiration-date.asp.Can the
Can The Average Investor Benefit?
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Holding cash has an opportunity cost, which is equal to the difference in returns between other better-performing assets and the minimal return on cash. For example, if you decide to stay in cash and opt for a certificate of deposit paying 1% annually instead of investing in an equity index that subsequently returns 10%, your opportunity cost would be 9%. But if the equity index returns 2%, your opportunity cost is only 1%.
This opportunity cost should be viewed as the option premium paid for staying in cash, or the cost associated with having cash as a call option. The “cost” of such call options fluctuates over time. It is low when investment opportunities are few and upside is limited, at which time investors are better off holding cash as they await better entry levels. But at other times – typically during the uncertainty that reigns after a market crash – when downside is limited and investment opportunities are both abundant and compelling, the opportunity cost of staying in cash is too high. At such times, investors should consider aggressively deploying their cash holdings into assets that offer potentially higher returns.
In Singapore's context (presuming you only invest in SGX) which Equity Index should we compare to as Opportunity Cost for our Perpetual Cash Option(rotting in the bank)?
DeleteAny one like to share some ideas?
My emergency cash, one year cash reserve for household expenses, household maintenance & repair and gifts are separate asset marked for expenditure not included as cash (call option) as war chest.
DeleteWar Chest as an call option can be nasty too.
Read? Does Experience With Past Market Cycles Made Us Wiser and Profitable???
Those investment bloggers with several years experience in the stock market whom I know them can do at least 4 to 5% CAGR.
DeleteCan lah 4 or 5% even for 20 years to 30 years CAGR
DeleteEspecially cash war chest (opportunity cost) has been separated from Stock portfolio CAGR.
My has been separated since beginning so it show much more than 4 or 5 % lol (
Do you use "cheat sheets" sometimes to make your life easier?
i have but at the end of the day what is your Total Assets(Total Return On Investment since day one till now) is the Real Thing".
If we are not "cheating" Bei Kambing to conduct courses to create wealth by manipulating numbers; then by all means cheat ourselves in whatever way when it makes us happy. No unintentional harms to anyone else. It is morally alright. Just do it. The Story of The Man, his Son and the Donkey. The Man and his son can also carry the Donkey. What wrong with it? The Last Ritual for the Donkey. Let Donkey enjoy his last journey. LOL!
DeleteIf consider the equity index returns of 2010-2016 as the STI ETF's dividend yield P/A from 2010 to 2016, then the opportunity costs for cash option or option premiums paid for staying in cash is not too costly.
DeleteStill want to stay in CASH?
If you use CPFIS CPF fund as cash option for the above years, you don't lose much at all.
DeleteCW,
ReplyDeleteVery simple.
How would you feel if you invested money with a professional money manager with excellent track record only to find out he has his own proprietary (euphemism for made-up) way of measurement:
1) Unrealised gains and realised gain are counted. Mark-to-market accounting. So far so good.
2) Unrealised losses are not counted - the manager does not consider unrealised losses "real" losses??? Only the entry price is used for measurement.
3) Only realised losses are counted. (That's how buy-and-hope and I invest to break-even one day started)
Sounds familiar?
That's what bei kambings do for their own portfolios.
Which is fine. We all need our Ah Q moments... Fully understand.
I've caught myself more than once consoling myself that my "Italy" makes me "look more" prosperous!
LOL!
2017 resolution is to keep "Italy" out of World Cup?
DeleteCW,
DeleteI don't do New Year resolutions.
I've stopped lying to myself.
If I really wanted to get rid of my "Italy", it would be gone by now...
That's not way I get up in the morning ;)
Opps! I meant "why" I get up in the morning ;)
Deletewhat is "Bei Kambing"?
ReplyDeleteobviously this is a post with reference to some other blogger's recent article, i'm surprised to see that someone counted the RR only over his/her invested part, but doesn't include cash position, that is simply self-deceiving. for especial an investor whose majority of wealth are in the market, how can cash and its return not be counted?
Let SMOL explains what is Bei Kambing as he may have patent it. :-)
DeleteBruce,
DeleteBei Kambing is singlish for 小白羊。
闽南话指凯子。
上海话-戆大。
I miss my 4 wonderful years in Shanghai :)
Start a virtual bank with $1,000,000.00 virtual cash that has zero interest rate of return.
ReplyDeleteAll B & S of stocks related to this virtual bank.
This is the "cheat sheet" for CAGR stock portfolio without ever need to inject new cash and zero interest rate of return.
In this way, CAGR OF Stock Portfolio is purely stocks only.
LOL!
DeleteSo we are all millionaires with this cheat sheet if we can just live on air only.