rofgile (35.37)

rofgile's CAPS Blog

I have trouble sitting on cash.

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February 29, 2012 – Comments (13)

I realized yesterday that I completely lack discipline in holding onto cash rather than buying stocks.

I sold a fair amount of DSCO at 30% profit, and was pretty happy.

So.. I go and I buy FSLR yesterday because I thought they looked undervalued. Note, I bought ahead of earnings - perhaps that is never a good idea. The same afternoon, the shares lost over 10% as FSLR announce problems with the solar cells, lowered future sales, troubles with Germany quiting subsidies...

Oof.

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I need to decide now whether to just give up on the green energy field as a whole. First Solar and Vestas have been some of the worst performing investments I've made in 2011 and 2012.

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My big problem: I can't just hold onto cash. The longer I have cash, the more I see "deals" which if I didn't have the cash I would probably be more patient. I think I need some discipline, but I need a method to get it, such as I won't use my free cash for at least a month, or other limit...

-Rof

13 Comments – Post Your Own

#1) On February 29, 2012 at 7:59 PM, chk999 (99.99) wrote:

Try setting a fairly high minimum rate of return. Then figure what you think the investment is mostly likely to do (not the best case, but the most likely) and see if that meets your hurdle rate. If not, don't buy.

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#2) On February 29, 2012 at 8:21 PM, HarryCarysGhost (99.74) wrote:

You know I have the same exact problem. Some of my worst investments were when I thought something looked like a good deal, and I had dry powder just sitting there earning .01%. Figured I'd be stupid to just have this cash laying around not doing anything for me.

Generally those investments lost money where the ones that I took my time and really thought through have done well.

My solution for 2012 has been woking well so far. Anytime I have money burning a hole in my pocket I send it to my KO DRIP. This keeps me away from speculating to much, speculation was great from 2008-2010, but did not work so well in 2011.

Any how that's the plan and I'm sticking with it.

Cheers.

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#3) On February 29, 2012 at 9:22 PM, Valyooo (99.91) wrote:

Ugh, I feel your pain. I can make 5 trades in a row, make 5% on each, and then I will think the market is ready to pull back. Instead of waiting, I try shorting things, and get shook out in a few days. The commission costs eat me alive.

I like HarryCarysGhost plan. If you are sitting on cash, just put it in a bluechip. Personally I would prefer short term paper if I had a lot of money, but I don't.

The way I see it, is I like to concentrate my stock holdings into 5-10 stocks, and then have a ton of ETFs, and short some leveraged ETFs. At any given time, I am likely to be up a few percent on at least one of those ETFs, so I sell that to buy the cheap stock when the opportunity arises. A mix between low yield bonds, high yield bonds, small caps, large caps, EMs, gold....SOMETHING has to go up. If everything goes down really badly, I will just dip into my emergency savings and buy stocks, because they wont all crash at once unless a march 09 situation happens

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#4) On February 29, 2012 at 11:25 PM, zCreator (< 20) wrote:

I have the exact same problem, though I've been getting better recently. I'm a lot more comfortable sitting on cash for a few days now because my rational is, "It's better to just be in cash for a few days while I'm looking for a good stock rather than losing several percentage points on a poorly thought out plan." Though I do agree whenever you have some extra cash buying up on a bluechip sounds like a safe way to go.

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#5) On March 01, 2012 at 12:54 AM, tekennedy (57.38) wrote:

For the longest time I had the reverse problem where I kept too high of cash balances. I just started investing as the market was tanking in 2008 and I kept telling myself "wow, these prices are great, but it'd be amazing a little cheaper." Although I was mostly invested toward the bottom I kept too high a cash balance as the market kept going higher, with the expectation that it would fall back down.

I currently have a system where I attempt to set cash goals based on the value of the S&P. S&P is at 1200... 5-10% cash, 1300... 10-15%, 1400... 15-20%. I've used that system for a while and its seemed to work OK. It has the added benefit of enforcing better selling discipline where I evaluate which stocks I'd be most willing to sell and at what price.

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#6) On March 01, 2012 at 1:05 AM, ganalon (84.10) wrote:

This is a bit risky... but you can always try a cash + bond EFT + call option strategy. Hold a lot of cash and buy slightly out-of-the money options on, say, SPY. Spend no more than 3% of your balance on options per quarter. Plan on losing that 3%. When your calls hit, though, it can be very nice.

Conversely, you can own SPY and sell covered calls.

Better yet, just own a fixed allocation of equity, bonds, cash, and maybe some "other" (commodities, metals, etc) and call it a day.

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#7) On March 01, 2012 at 9:25 AM, Schmacko (96.99) wrote:

A friend of mine just dumps his spare cash into PGX, which is a financials preferrred shares ETF. It pays a monthly dividend (annual yield roughly 6%) and is low beta. Since Jan 2010 it has basically bounced between $13.5 and $14.5. His logic is that it yields better than the money market sweeps vehicle his online brokerage uses and barring another 08-09 market collapse he's unlikely to lose/gain much capital doing this.

A similar strategy could probably be used with any low volitility ETF or CEF that pays a reguler (pref monthly) dividend.

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#8) On March 01, 2012 at 10:51 AM, Momentum21 (93.82) wrote:

time frame is everything rofgile...the market can correct tomorrow and anything you bought today is going down. it is more important to buy stuff that you can live with for awhile...that's what gives us an advantage over the big guys, they don't have the luxury of time.

And also, the fact that you view DSCO at a 30% gain could be another problem. For the amount of risk in that trade should you be satisfied with a 30% return. The fundamental evaluation of that stock has not played out and you could have just as easily gone 60% underwater.

I use DSCO as an example because I think it is worth considering what your winners need to achieve to support your losers when you have a highly speculative portfolio.

Good luck!

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#9) On March 01, 2012 at 11:12 AM, EnigmaDude (97.62) wrote:

It's actually somewhat reassuring to read this and the comments. I sometimes feel the same way. I try to identify candidates for buying before I have the cash so that when I do I am ready to jump. But sometimes when you have the cash ready and a special situation pops up it is perhaps too easy with online brokers to just "pull the trigger".

My approach is to allocate a certain amount of cash for speculative, high-risk investments (swing trades) and then be sure to allocate the rest for solid, large cap dividend stocks like GE that I intend to hold for a long time. That helps to balance out the risk.

And just remember, you don't really lose money until you sell at a loss. It's quite possible that First Solar will come around and give you back that 10% loss plus more if you hold on long enough.

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#10) On March 01, 2012 at 2:12 PM, L0RDZ (55.80) wrote: