The idea of cash earning zero comes up every so often in interviews, in the context of managers needing to put cash to work because of the low yield, or "you don't get paid to sit in cash" or managers needing to get invested ahead of the quarter (window dressing).
This is entirely the wrong context. If you knew that stocks would double over the next year, then a money market yield of zero is bad. If you knew that stocks would be cut in half over the next year, then a money market yield of zero is fantastic.
Obviously no one knows whether stocks will go up 100% (unlikely), down 50% (unlikely) or something in between (likely). People who actively manage portfolios (for themselves or others) probably have an opinion about direction and tilt to that opinion in some magnitude. In this context, cash becomes a tactical tool regardless of the yield. As a tool, it is used in correct proportion for a given period or it isn't, but the idea of "too much cash" is not complete without context.
During the worst of the recent (current?) bear market I met with my firm's primary point of contact at Schwab and he mentioned something about our cash level being high - this, as the market was puking down. To put it in Hussmanesque terms, if risks favor the downside, then having cash - regardless of the yield - becomes the correct tactical decision.
Unfortunately, much of what we see in the media asks the wrong questions or more correctly frames the context incorrectly. "I see you don't like financials" is one example. Actively (so not passive) navigating market cycles can be made much easier (not easy, easier) by weighing risks and rewards of various things you invest in, either broad asset classes, investing at the sector level, country level or however narrow you go.
In too many interviews in the media, maybe as a function of time, the questions asked do not necessarily seek the correct context and the person being interviewed may or may not realize this and add in that context. Anytime you read or hear anyone speak, it is important to realize there could be more context as not every one tells you everything he is thinking, like Jimmy Rogers.
By: Roger Nusbaum, SeekingAlpha.com, http://seekingalpha.com/article/161830-but-cash-is-earning-zero
Crew Capital Management Thoughts on Investment
Welcome to the Crew Capital Management Thoughts on Investment blog. At Crew Capital, investment education is key to how we work with our clients. We hope our conversation and analysis entice you to think further on your investment strategies and planning. For further discussion, please contact us at rjung@crewcapital.com
Thank you!
Robert F. Jung, CFA CPA*
*CPA inactve
Thank you!
Robert F. Jung, CFA CPA*
*CPA inactve
Thursday, September 17, 2009
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As a registered investment adviser, Crew Capital is required by rule to adopt and enforce a code of ethics that establishes the standards of conduct expected of all employees and reflects our fiduciary duties. A copy of Crew Capital’s Ethics Policy will be provided to any client or prospective client upon request.
Nothing on this web site shall be construed as advice to any particular investment need or investor. All references regarding investment or portfolio returns are based on historical data. One should not assume that this performance will continue in the future as past performance or results are not an indication of future performance or results.
Certain portions of Crew Capital’s web site (i.e. books, newsletters, articles, commentaries, etc.) may contain a discussion of, and/or provide access to, Crew Capital’s (and those of other investment and non-investment professionals) positions and/or recommendations as of a specific prior date. Due to various factors, including changing market conditions, such discussion may no longer be reflective of current position(s) and/or recommendation(s). Moreover, no client or prospective client should assume that any such discussion serves as the receipt of, or substitute for, personalized advice from Crew Capital or from any other investment professional. Crew Capital is neither an attorney nor accountant, and no portion of the web site content should be interpreted as legal, accounting or tax advice.
At certain places on this site, live "links" to other Internet addresses may be accessed. Such external Internet addresses contain information created, published, maintained, and otherwise posted by institutions or organizations independent of Crew Capital. Crew Capital does not endorse, approve, certify, or control these external Internet addresses and does not guarantee or assume responsibility for the accuracy, completeness, efficacy, timeliness, or correct sequencing of information located at such addresses. Use of any information obtained from such addresses is voluntary, and reliance on it should only be undertaken after an independent review of its accuracy, completeness, efficacy, and timeliness. Reference therein to any specific commercial product, process, or service by trade name, trademark, service mark, manufacturer, or otherwise does not constitute or imply endorsement, recommendation, or favoring by Crew Capital.
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