I intend to improve the diversification of my portfolio and buy one new company to supplement my four fairly large direct stock investments. I will gather the funds for this partly by selling a small portion of my largest investment (its weight has grown too large anyway) and partly from savings, etc. So, in the future, I would have five large direct stock investments in my portfolio (plus funds for diversification).
Now I’m wondering what to do with these funds before buying the new company. I estimate that finding a new company will take some time, probably until late this year/early next year. Keeping it as cash is simplest, but I’m slightly concerned that the money will be out of the market, and thus my portfolio’s risk profile will be different from what it has been/will be. My cash weighting is now much larger than before, and thus I’ll miss out on returns in a bull market (and conversely avoid losses in a bear market). One idea would be to “park” the money in an ETF for the waiting period. Or does that make it too complicated?
It would be great to hear if you’ve been in similar situations and how you’ve acted. Plus, of course, any other ideas and comments are welcome!
My best advice is to take the time to find a new investment target. This means researching the industry, the company’s history, current valuation, speculation on future valuation, future risks, etc.
Michael Burry recently spoke about a passive investing bubble, but I won’t comment further on that. It seems to apply more broadly to the US markets anyway. The most important thing is to find your own investment style, invest accordingly, and keep a cool head during booms and busts.
True, but I think it’s important to understand your own investments based on fundamentals, and I’m not saying that @xlat couldn’t. I see a problem if you read one analyst’s recommendations online, which sound convincing, and jump straight in. This might be a bit off-topic.
I would personally hold cash until I find a good company, as ETFs are quite slow in their upward and downward movements, so you might not gain much in half a year. Of course, if you believe you’ve found a good ETF that would yield a little in the short term, then why not.
Yes, I’ve set aside enough time to find a new company (as much time as needed, because in investing, rushing and hurrying are dangerous things). And if I don’t find a suitable company, I certainly won’t “force” myself to invest in anything.
The point was just whether I should keep the money in an account or “stay in the market” by temporarily investing the money in an ETF (S&P500 index or similar), from which I would then redeem the funds when the time comes to buy stocks. Perhaps it’s easiest just to keep the money as cash…
My portfolio is divided in half: one half in four stocks and the other half in funds and ETFs. Now the idea is to expand the stock side to five companies (better risk management), and the other half will remain more or less the same.
I wrote about returns in the investment philosophy thread; I invest globally, and over ten years, I’ve performed better than the global index. But historical returns don’t say much about the future; we’ll see what happens next.
And sorry about the opening message, it was a bit unclear. So, I do have a plan on how I’m going to find a new company. That part has been thought out, and the process is the same as with previous companies. But it takes a lot of time, easily several months.
The reasonableness of cash depends on the volatility, liquidity, and beta of the alternative investment. Buying stocks requires cash, so the simplest option is to hold some of your wealth in cash. The value of cash does not fluctuate with the market, unlike individual stocks and stock indices more broadly (beta = 0). The volatility of a stock index, meaning its value fluctuation, is often smaller than that of individual stocks, but in both cases, you bear market risk.
If you need the money soon, a stock investment is a risky choice because its value fluctuates in the short term. I don’t know your investment criteria, but if you want to, for example, buy fallen stocks, it’s not advisable to keep your convertible wealth in an asset class that correlates positively with the decline. You would have to sell a declining ETF investment to buy declining stocks. The good thing about cash is its stability.
Perspective is important. Only invest funds that you are (really) prepared to lose. For Uncle, the basic distribution (stocks-cash) has always been 50-50, then like Matti Nykänen it was 50-60, and now with the threat/prevalence of recession, it’s 50-75.
This won’t generate huge returns, but there’s no need for it either. For Uncle, investing is entertainment, and living is secured with cash.
Uncle Masse, FA, secured entertainment for the 3rd generation
If it were me, I would invest in a stock and take the - albeit small - timing risk. Probably a strong, high-dividend stock whose price is likely to rise before dividend season. I would sell sometime in January-February.
However, a quick analysis of you as an investor suggests that you want to consider things for a long time and perhaps avoid risk, so I don’t recommend the same for you. If I were you, I would do this:
I would look for a suitable selling moment for the current stock you are reducing during the autumn
I would ask our TA expert for an opinion on a good selling moment
I would keep the cash in the account
I would research the companies thoroughly and buy once the decision is made (possibly in several tranches)
Thank you for your good comments. I am already gradually selling this company, which has grown to an excessively large weighting, as I don’t like my portfolio’s risk level being too high. And through that, cash is constantly accumulating. The selection of a new company indeed has its own process, and once a company is found, I will make purchases in phases; the last time I did this, it took about a year for purchases. Perhaps for clarity, I will keep these funds as cash for now.
Uncle Masse, what kind of interest rate do you get on cash, and do you keep it in many banks?
This Aunt Nova18 also has a 50-50 split, but everyone nowadays considers it almost criminal not to be growing wealth in the stock market and other markets.
I haven’t found an interest rate much higher than inflation protection anywhere, meaning the interest on cash hovers around 1% at most. Thanks for any possible tips!
Dear nova18. Uncle doesn’t have any more secret cash protection than that. In two different banks, across 4 different accounts (one is a USD currency account), and the interest rate is what you say, practically zero. So it doesn’t grow, but there’s no risk either
And the stock-cash distribution right now is that legendary Nykäsmatti 50-60
Uncle Masse, FA, uncle likes it when young people humbly ask for advice
Ha-haa, Uncle Masse. I’ll become Masse’s disciple with a long position
Thanks for the clarification, so that’s money and interest.
Now I’ll throw a question to the Nordea section and to the old man, as I don’t know what to do. Should I buy more to break even before selling, or should I just sell off this long-standing pain in the ass and accept the loss with my head held high… I’ll try to ponder the correlation between dividend yield and loss before selling.
Globally, there’s talk that the banking sector is already doing too poorly, and central banks can’t afford to let it get into a worse mess. So, could the whole sector start to recover? Almost everywhere, the curves are pretty much like Nordea’s. My crystal ball is also on strike, salary negotiations are ongoing.
Uncle Masse won’t comment on Nordea now, since he sold all his Nordea stock back in the day. Back then, he got a decent price per kilo for the meat. Somehow, that old good company led by Nalle and Kasper has moved to version 2.0, and Uncle doesn’t really have any vision for its future. Unfortunately.
And anyway. Uncle is not allowed to give investment recommendations or advice (that’s a licensed activity), but he can give views, opinions, and stories about his own actions all the same
Uncle Masse, FA, whose ramblings always have that annoying trait of hiding a small seed of truth
Thanks for the truth seed reminder. I’ll have to buy cress seeds soon. At least I can predict all the seasons, if not from the weather, which is getting stranger and stranger, then at least from the calendar.
