Question on war chest and market timing

[tanjm]

I've increased my cash 2 times in the last 2 years anticipating a majorish correction and it hasn't happened yet (sheepish)

I'm on yet another round of cautious cash raising, with a difference. Some of is in SGD cash. But About 30% of my portfolio is now in USD equities or in USD cash, so I've benefitted from the recent run up in USD. I think USD has some more room to appreciate. For the USD equities, I've been cautiously moving in and out of oil and services ETFs (currently all divested), and mREITs (because I think the worry about interest rates is a bit overdone) and also in and out of SPXS (3x leveraged S&P 500 short) because I believe upside moves will be smaller then downside moves, so I've been buying when market is up and selling when it moves down a bit - so far so good. I'll ride SPXS when a correction comes along, so it's a hedge as well.

This semi trading style is a bit atypical for me, but it suits me and the situation for now.

[specuvestor]

I'm mostly a silent reader since I'm still a novice with not much experience/knowledge to contribute. But I had benefit a lot from many of the postings from the generous folks here. Let me start by giving my most utmost thanks to everyone here.


I had this question for the longest time but till now I do not have a clear answer. With the bull market running for 5 years now, this question weighs even heavier.

Question 1: Should we be 100%(or close to 100%) vested all the time since many always said market timing is impossible(at least for normal folks like me)? Plus some also said cash is a dead weight in the portfolio since it is eroding its value with inflation.

Question 2: If we are 100% (or close to 100%) vested, do that mean that we will have no war chest? If we do have a war chest, we are considered not 100% vested already... (Emergency funds are not included as they will never be used in stocks purchase)


For me, I'm currently I am 80% vested with the rest of 20% in my OCBC 360 account earning 3% interest (trying to make the dead weight more useful). I will buy in again whenever the cash portion grows over 30%. But with the market become higher, it seems to be harder to buy as well...


Question 3: With the market getting higher, should I cut down on the ratio and fatten my war chest? But will it contradict on the theory of "do not time the market"


I know there is no right or wrong and there are many different ways to successful investing. Wanted to hear what are the others views on these.

Thank you very much in advance.

Pretty much a novice investor myself, thus I will prefer to hold some cash. My ideal level is 33% cash, 66% invested. Reason is if my equity down by half, I can double up my investment. When things recovers, I will be 33% richer.

Am I considered timing the market? I don't think so.

Will like to hear from those who 100% vested on how to survive a downturn. Thanks.

I think this is a pretty good strategy that is comfortable psychologically & emotionally. These 2 are very important when the big one comes. If 100% invested and all stocks collapsing with no ability to average down, it will affect the psyche tremendously. That's reality cause you are thinking of losses rather than opportunities when it bites you.

Execution in itself have an element of market timing. That's inevitable in my observation rather than the Value mantra of not timing the market because I cannot see the difference between buying a stock at 0.7X Book and 0.6X Book on a value perspective except for 15% share price difference. Selling stocks on an up market to build warchest also has elements of market timing.

VB main basis is not on market timing, or short term trading, but hard to say market timing on a big picture is not one of many factors to consider.

[zxiank]

Have similar views with specuvestor. There's some element of market timing in value investing. To add on, generally in a bull market, there will be lesser undervalued stocks, hence you won't get many chances to buy and will have more cash; conversely, in a bear market, there will be more undervalued stocks and more chances to buy and hence less cash (or 100% invested). We can quickly reference warren buffett's cash hoard now to prove this point.

For normal working adult, if we strictly only buy when we see value in a suitable company, chances are you will sitting on quite a lot of cash now due to the cash flow from your salary/dividend/interest/etc.. Personally, I don't have a fixed percentage allocation of how much cash to investment but I'm willing to be 100% invested or 100% in cash depending on the market condition. I guess I'm rather young and without much expenses so i can be more "aggressive" in terms of wealth accumulation. Will you guys have other methods/strategy when you're older?

I think this is a pretty good strategy that is comfortable psychologically & emotionally. These 2 are very important when the big one comes. If 100% invested and all stocks collapsing with no ability to average down, it will affect the psyche tremendously. That's reality cause you are thinking of losses rather than opportunities when it bites you.

Execution in itself have an element of market timing. That's inevitable in my observation rather than the Value mantra of not timing the market because I cannot see the difference between buying a stock at 0.7X Book and 0.6X Book on a value perspective except for 15% share price difference. Selling stocks on an up market to build warchest also has elements of market timing.

VB main basis is not on market timing, or short term trading, but hard to say market timing on a big picture is not one of many factors to consider.

[LionFlyer]

There is always some element of market timing, just that for value investors, the windows are much wider (e.g economic cycles), while a trader will focus on a specific security and a short window (e.g days).

[thor666]

Just wondering: does the lack of suitable value stocks for a value investor coincide with the beginning of a correction?

I have been relooking at my watchlist and can only eke out 1-2 potential stocks at this point.

Could well be a case of fundamental analyses guiding the decision to hold back.

Sent from my D5503 using Tapatalk

[jjlim84]

Just wondering: does the lack of suitable value stocks for a value investor coincide with the beginning of a correction?

I have been relooking at my watchlist and can only eke out 1-2 potential stocks at this point.

Could well be a case of fundamental analyses guiding the decision to hold back.

Sent from my D5503 using Tapatalk

That depends what your criteria is

If a major correction is really on the brink, it's will be quite different compared to the previous one, many construction stocks are still at discount to NAV, where previously most of them are above it. PE ratios are still low compared to previous one, at least in STI, am not sure about US stocks though

[paullow]

war chest n market timing, in order to use these effectively, one needs to master adequate control of his emotions n psychology, in addition to having a good view of where the market is heading. To buy at the deepest trough is not wasy, as how many can predict where that is, let alone utilize his war chest at that scary moment.
In order to reap the greatest rewards, three things needs to be present 1) warchest 2) correction or even close prediction of when the trough is 3) execution of plan
personally, i recognise that i am unable to predict market trends n also most probably unable to execute my plans at the trough even if a warchest is available to me there n then. Thus, personally i adopt an approach of having a portfolio which produces dividends every mth, such that it will keep adding units every mth. If market goes up, lesser units are added. If market goes down, more units are added. The feeling of getting passives mthly will sooth n calm ones nerves during market scary moments. its an investment which focuses on "buying" tomorrow's cashflow using today's money. absolute portfolio values does not matter too much as these are a function of inevitable normal market fluctuations.

[specuvestor]

Actually I think catching top or bottom, trough or peak is only useful for cocktail talk Approximately right is more important than precisely wrong

What is important besides knowing the business is the asset allocation strategy and execution cause nobody knows where is top or bottom. It's a fine line between cutting loss and accumulate, unless one knows what one is doing.

Cashflow to the investor is indeed paramount in the long run because capital gain is fleeting based on "market timing", especially for full time professional investors, so balancing and constructing portfolio with adequate cashflow is important rather than rely on Mr Market

[opmi]

for someone with limited initial capital, will never get rich fast enough if just collect dividends. Even Buffett used insurance float & profit sharing to scale up.

need to make a few major asset allocation near mkts turns or get a few multi-baggers consecutively. Catching tops and bottoms with ETFs also wont make anyone with little capital, rich.

if not, have to earn capital via salary/savings or business or property. thats takes time.

[sgd]

the only way to be rich quick as the wording "quick" implies is to take big speculative risks. Speculation is as old as the hills. The rich people you see today who own banks hotels big businesses they inherited their wealth from their parents or somebody who took the big risk.

Having guts and taking big risk does not automatically make you rich you also need to have luck. even w.buffet took big bet using insurance float had he failed all those years ago we probably would never heard of him.