Sunday, March 15, 2015

It's Not How Big It Is, It's How You Use It

Your warchest, that is.

(The) Boring Investor wrote an excellent post today related to this.
"Even if a bear market is really coming, does mean that an investor with 100% war chest will definitely do better than another investor with only 50% war chest? Much will depend on how these 2 investors deploy their war chests, how long and how low they think the market would go, and what stocks they buy. The key issue is, besides having a war chest, do you also have a good game plan to go with it?"
I am very pleased that I read his article and his views resonates with mine. Being caught in a bear market is not a complete disaster when you are still on your investing journey, it only becomes a disaster if it happens right before your retirement. 

I gather that the main point of his article is about balancing between being invested and being on the sidelines. Having cash and just sitting on it can be a silent killer, since we all know inflation slowly kills our purchasing power. However, being invested also means that the money invested is subject to the stress testing of a bear market. Many stress tests fail during a bear market. How do you strike a balance between the two?

I think it is about identifying the risks involved in each position given the current market situation.

That is why I'm holding onto very healthy positions on cash and less risky assets. However, my allocation is quite barbell looking. I also hold a lot of allocation in traditionally "risky" assets, such as commodities and their miners and even equities in Russia. So, not very typical I guess.

I don't need to hope for a bear market to come. It will come eventually. I've already got a rough plan sketched out in my playbook, do you?


  1. Hi GMGH,

    Very true. The war chest is the easy part. Making the move to buy when everyone is selling is the tough part and the toughest part is how much to keep on buying when prices keep on falling.

    1. Hey Derek,

      I guess it will depends on how brave or scared we are at that point of time. We might not be able to catch the bottom, but as long as we aren't leveraged up to the neck, I think it is fine to hold onto a losing position for as long as it takes, as long as the fundamentals are sound.

  2. Those cliches need to go along with some basis for what makes for a value buy. Else it could be a slide downhill to zero.

    1. Hi Lizardo,

      Value buy or value trap is still one of the things I struggle with. I don't think it's easy to figure out what makes one or the other. In each case, there always seem to be overlaps.

      But yes, it must be noted that some things are cheap because they are horrible, nothing more to it. Buying cheap doesn't necessarily mean that you can sell it higher.

  3. Not easy during Big Bear e.g. AFC and GFC. Even for those have experienced the past few bear markets.

    Read? What was I thinking and feeling in Mar 2009 Bear market low? (2)

    1. Hi Uncle CW8888,

      I can imagine. When it happens, I hope I will have a non-emotional state of mind to take advantage of such opportunities!

      Lately I have been watching less and less TV and reading less and less news. Trying to tune out all the different opinions out there and form my own!

  4. How much % of your portfolio is in cash?
    What if the bear does not come within the next 5 years?

    1. Hi Felix,

      Roughly 40% of my portfolio is in cash. It is still giving me good returns because almost none of it are sitting in a 0.05% bank account. They are either pumping out a fantastic 3.05% in OCBC360 or working out and pulling their weight somewhere else.

      If the bear doesn't come within the next 5 years, I'll still continue what I am doing. Selectively pick up value buys of stocks and industries that seem to be out of sync with the rest of the market. I don't plan to be vested so much since my short term goal is to drop a ton of cash for a house downpayment, not to increase my portfolio. In fact, I would probably liquidate parts of my portfolio for that.

      I am actually not too worried about inflation at all. The whole world is being dragged into deflation. If the US uses the same method of calculation as Europe, (dis)inflation numbers are almost the same. Losing 1% real purchasing power a year (current maximum based on forecasts) seems to me like a good price to pay while waiting for opportunities in other places that I haven't already vested in.


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