Cash In Hand May Be Worth More Than An Investment In Gold

Cash In Hand May Be Worth More Than An Investment In Gold

Cash In Hand May Be Worth More Than An Investment In Gold

In the first part of this irregular series, I tried to point out the value of having some slack assets should attractive opportunities present themselves.

I try to raise cash in my equity strategy as valuations rise.  I try to reduce cash as valuations fall.  It doesn’t work perfectly, but I do think it reduces risk, and it might improve returns.

EXCLUSIVE: KG Funds Shuts Down After 13 Years Of Outperformance

After 13 years at the head of KG Funds, the firm's founder, Ike Kier, has decided to step down and return outside capital to investors. The firm manages around $613 million of assets across its funds and client accounts. According to a copy of the firm's latest investor update, Kier has decided to step down Read More

Buffett also views cash as valuable.  He views it as a call option on other assets, as is noted in these two articles.  With cash, your downside is limited — you can just sit and wait for a good opportunity.  In one sense, if you wait too long, the opportunity cost of cash could be significant, but over most 5-year periods there is a drawdown in asset prices that avail good opportunities.

Cash gives you options, perhaps not options in the same sense as “puts and calls,” but options in the sense of choices that are easily achieved.  Particularly for Buffett, who is the choice of many who want to exit their private business, and want their culture/friends to survive, rather than receiving top dollar as a sales price.

Even as the Fed tries to make cash less attractive to hold, it is still valuable to those that prize flexibility.  That is the virtue of cash, and it is impossible to erase.

By: alephblog


Updated on

David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.
Previous article United Health Agrees To Buy 90% Of Amil Participações For $4.9 Billion
Next article Wal-Mart & American Express Offer Bluebird Alternative Bank Accounts

No posts to display