Staying Fully Invested

Investment Analysis Clubs Saul’s Investing Discussions
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My portfolio bottomed ONE YEAR AGO on Feb 11, 2016.

They did not ring a bell to tell me or anyone else that it was the bottom. I remained fully invested and now one year later my portfolio is up 71.8% from that date to an all time new high for me.

Another point of reference - My portfolio is up 15.9% from the Nov 2016 election when many were raising cash to trim or get out of positions.

Remaining fully invested gives me a cushion. On a pullback (if there is one now) my portfolio can give up the 15.9% recent gain and be no worse off than at the Nov 2016 election time. Portfolio income would probably remain the same and possibly still continue to increase.

Those that have anticipated a pull back that hasn’t happened will probably remain on the outside watching the market climb and not be willing to buy back in at higher prices, and not participate in a rising bull market.

Many years ago, when I was in basic training in the army, they taught me to “Never Anticipate The Command. It Could Get You Killed”

b&w

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Interesting post b&w. I must admit I am one of those who has been building out a larger cash position recently, now approximately 20% of my portfolio. I know Saul advocates being 100% invested as well. Despite this, my portfolio is also at an all time high. But there is a difference between now and Feb 2016. Right now the markets are at all time highs. In Feb 2015, the market had a substantial correction. And because I had some cash in reserve, I was able to benefit greatly from that correction. So I’m not sure what the best strategy is going forward. It could be that Trump friendly policies continue to send the market higher? But I’m comfortable holding some cash in reserve for the moment.
Scott

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Typo, in Feb 2016…

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. Despite this, my portfolio is also at an all time high. But there is a difference between now and Feb 2016. Right now the markets are at all time highs

Right now the markets are at all time highs<<<<

That statement got me looking at my portfolio WHich is also at all time highs BUT and Its a big BUT
76% (by dollar amount)of the stocks in my portfolio aren’t anywhere near all time highs. They are currently trading at 24% to 54% below the all time highs of 2-3 years ago I have spent the past year adding large amounts of additional shares (Mostly from dividends/distributions because I still have to remove cash from my portfolio to pay my bills and Taxes). at fire sale prices during the energy collapse while collecting increasing dividends/distributions. As I said the portfolio has increased 71.8% since Feb 11 2016 and if energy continues recovering the portfolio hopefully will do well going forward

b&w

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So I’m not sure what the best strategy is going forward.

Guessing right 100% of the time never fails. I’m only half joking. We are trained to think in a straight line, if A then B, but the market is not a simple machine that responds directly to feedback. The market is a complex adaptive system which, with our current state of knowledge and technology, is not sufficiently predictable to trade based on macro events.

My strategy is basically ignoring the market and concentrating on my positions. I say “basically ignoring the market” because I don’t ignore it entirely, it does affect my trading to some degree but it it not the primary driver. During this past season I did accumulate some cash but it was mostly from the sale of one disappointing position. Funny thing, the stock dropped another 12.5% after the last earnings report which prompted me to start buying it back.

It’s not that individual stocks are predictable, they too are “complex adaptive systems” but much less complex than the market as a whole and we can do a fair game of guessing them. I think one should have a clear strategy for each stock and be careful not to second guess oneself. On top of the complexity of the market we inject the complexity of our emotions, the built in fight or flight instinct we used to survive on the savannah. People with so called nerves of steel simply suppress the fight or flight instinct. One of the harmful things when racing sailboats was that I was constantly distracted by what was going on around me instead of concentrating on making the boat sail as fast as possible. Winners are able to block out the irrelevant.

What does “fully invested” mean? Zero cash? Some cash? Some margin? I stay away from margin. I try to accumulate cash through dividends and selling covered calls until I have enough to buy some stock or ETF.

Denny Schlesinger

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My strategy is basically ignoring the market and concentrating on my positions. I say “basically ignoring the market” because I don’t ignore it entirely, it does affect my trading to some degree but it it not the primary driver.

I think Warren Buffett said something like: Micro is what we do. Macro is what we deal with.

Jeb

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The market is a complex adaptive system

I believe that one of the complexities today is certainly the robo-trading. I can see how the algorithms would continually adapt to the algorithms of others. There were comments about the volatility on Friday, with 20 and 30% ups and downs on a relatively calm market day overall. I am thinking that these moves in small and mid-cap stocks are driven by this kind of trading. The volumes on some of those stocks was very, very large.

Assuming that these moves will be corrected (as I do), having cash provides opportunity. I believe this is exploitable and will be until some machine learning occurs that recognizes the symptoms of robot trading and exploits it faster than the investor/trader can (thus preventing the large moves in the first place). Some believe that big data crunchers are already predicting market behavior to particular events and investors are being manipulated.

Complex indeed. How the herd so quickly decides that UBNT’s results were bad, SKX’s were good, INFN, ATVI, so that we are left pondering Q’s and the calls looking for clues. My wife’s IRA had a 27 and two 19%-ers plus a measly 9% pop with results that weren’t worth writing home about. 'Course you can’t exploit an up if not already invested–absent shorting or buying puts. So holding cash tends to be a one-way street.

KC, looking for the fat pitch to not go OforSix.

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I believe that one of the complexities today is certainly the robo-trading. I can see how the algorithms would continually adapt to the algorithms of others. There were comments about the volatility on Friday, with 20 and 30% ups and downs on a relatively calm market day overall. I am thinking that these moves in small and mid-cap stocks are driven by this kind of trading. The volumes on some of those stocks was very, very large.

Don’t complain–Going back 40 years or so there were different complexities. On an extremely busy day volume on the NYSE would reach about 6 Million shares. On those days the tape would run up to 4 hours behind actual trading. The markets were for a long while closed on Wednesday afternoons for the brokerage houses to match up screwed up trades and get their paperwork up to date.Even On quiet days you couldn’t get a quote, unless you happened to be in the broker’s office watching the tape during lunch hour and the stock you were interested in crossed the tape. Of course the trade crossing the tape probably was an hour or more behind time.

b&w

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I remained fully invested and now one year later my portfolio is up 71.8%

Congratulations on that wonderful return. Your posts are interesting and bring an opposite point of view to my views.

We all experience drawdown’s and they are painful and often knock you out of your investing style, philosophy. Sticking to ones’s philosophy and investment requires lots of courage and conviction.

I am still young compared to you, working, and generally have money left after meeting my living expenses, yet I carry a huge cash, invests more defensively. Here you are retired and living out of your investment and have bold positions. Naturally one would expect opposite philosophies.

I don’t want to believe it is just that you have a great stock selection or you have conviction in your holdings. I guess it has to be something beyond that. How you are able to be so bold?

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The “long term” is more meaningful at age 20, when few of us have any money to invest than it is at age 70. When you have more money but may need it more because jobs are hard to find at that age. Bear markets in industrialized countries can last for decades (Japan)

Denny is right, the bigger and more complex the system, the more reflexive (Soros) it is the harder it is to predict. So general market bear and bulls are virtually impossible to know beforehand.
There is a lot to be said for staying invested especially if you are young . But it is not sure fire …

Me, I no longer pay much attention to 30 year roof warranties. And because I am an anciano I keep a substantial portion of my savings in cash. But if I had it to do over again I would have stayed invested with a higher percentage of my wealth. Concentrated on sailing the boat (I used to sailboat race too)

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Something about “climbing a wall of fear” comes to mind here.

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My portfolio bottomed one year ago on Feb 11, 2016. They did not ring a bell to tell me or anyone else that it was the bottom. I remained fully invested and now one year later my portfolio is up 71.8% from that date to an all time new high for me…Those that have anticipated a pull back that hasn’t happened will probably remain on the outside watching the market climb and not be willing to buy back in at higher prices, and not participate in a rising bull market.

Congratulations on that wonderful return. Your posts are interesting and bring an opposite point of view to my views. We all experience drawdown’s and they are painful and often knock you out of your investing style, philosophy. Sticking to ones’s philosophy and investment requires lots of courage and conviction.

I am still young compared to you, working, and generally have money left after meeting my living expenses, yet I carry a huge cash, invest more defensively. Here you are retired and living out of your investment and have bold positions. Naturally one would expect opposite philosophies…How are you able to be so bold?

Hi CM001,
I too bottomed on Feb 11 last year. It seems like ancient history now. I’m not up as much as he was, but I’m up a respectable 41.2% since then. I’m also an old guy, retired more than 20 years, and living off what I make in the market. I have no other source of income (besides Social Security). If I had kept half, or seventy percent, in cash the way financial advisors are forced to advise you, I’d have used up my money long ago. By staying fully invested I have much more than I started with.

Even in 2000, the year of the Internet Bubble bursting, I was lucky enough to sell out of all my internet stocks before the crash, but I didn’t go into cash. I just bought non-internet stocks, and finished up 19.5% on the year (after being up an amazing 115% in 1999 during the bubble).

Huge down markets do hurt. I was down 62.5% in 2008. Even more at the bottom in November, when, as I’ve written before, everyone was screaming “SELL!” and even I was scared enough that I was thinking of selling out to protect what I had left. I said to my wife “If even I’m thinking of selling there’s no one left to sell! This is the bottom!” And I was right. By the end of 2008 I was up 19.8% from that November bottom. And in 2009 I was up 110.7% for the year, and up 152.4% from that November 20, 2008 bottom, just 13 months before. If I had sold out and gone into cash I’d have missed all that.

You may think that you can time it and guess the bottoms and invest then, but it doesn’t work. At the bottom it’s usually so scary that you are waiting for it to drop another 50%, and then when it starts up you wait for those low prices to come back, and just drive yourself crazy second guessing yourself. It’s enough to have to decide which stocks, without having to guess when too.

Look, the people who predict that Bear Market will be right some day. There’s no denying it. But people who wait on the sidelines year after year, waiting for it, will miss out on a lot of gains. You are young. You can afford to have a long horizon. Especially if you can keep adding money to your investments every year.

Saul

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Hi CM:

I remained fully invested and now one year later my portfolio is up 71.8%

Congratulations on that wonderful return. Your posts are interesting and bring an opposite point of view to my views.

Thanks for the Kudos… My point of view is probably opposite to most others.

Sticking to ones’s philosophy and investment requires lots of courage and conviction.

Actually I would call it survival. I had nobody to lean on,if I needed money, so I made sure I didn’t need any. Early in our marriage I got sick and wasn’t able to work for 3 years, we had 2 kids and a house with a $180 monthly mortgage payment. I had some small investments that brought in enough money to pay our bills (If we didn’t eat too much) We never asked her parents or mine for money, because they didn’t have too much themselves. We just did it ourselves, as best we could.

I am still young compared to you, working, and generally have money left after meeting my living expenses, yet I carry a huge cash, invests more defensively. Here you are retired and living out of your investment and have bold positions. Naturally one would expect opposite philosophies.

I’m 83, so compared to me, most people are young. That’s why you should probably pay attention to what I say, and think about your future. Your main goal at your age is to build up your investment income to replace every single dollar you are earning with investment income. If it isn’t working, if you get sick and need it you will eat up your capital until it’s gone My positions are not bold, they are just unknown to you. That dosn’t make my selections bold, it makes you timid. All the cash you say you have if it is in cash is being wasted because it could be invested at about 10% return and the dividends could be reinvested.

I don’t want to believe it is just that you have a great stock selection or you have conviction in your holdings. I guess it has to be something beyond that. How you are able to be so bold?

Since I only have 8 securities, I don’t really look for more. Most people keep buying more and more stocks looking the the next MSFT-AAPL or whatever. They wouldn’t know what it is even if they tripped on it—And even worse buying their 100 or 200 shares of MSFT back in the day wouldn’t mean anything because most people will not add as the price goes up and eventually will get frightened by a 20K or 50K profit they will sell and give most to the tax man and then unfortunately probably buy something else and promptly lose the money.

I don’t consider myself “Bold” I would respectfully consider you way too timid and it will probably hurt you in the long run

respectfully
b&w

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B&w, quite wise words. I keep getting hit by a similar problem of more and more stock options to look into and get tempted by instead of just the few I own.

No doubt there comes a time to sell. That usually results from a bubble (even had to sell QCOM because of this), only rarely from business related issues as I only buy companies w great business and management, and from time to time from disruptive technologies, which AOL is the grandest example, but hardly the only example.

I have found that buying and holding (and selling only on the above circumstances) and just buying each month for the stocks I have chosen (I hold fewer different companies than even you) would produce the same or better results, than even the remarkable trading I’ve done over the years. I cannot even recall them all. The problem is that even 10 superb investment moves over time can be killed by one bad one. Whereas great companies, whose time to sell has not come, almost always recover and prosper again.

Sure, would have been great to sell ISRG at $300 and buy it back at $95, but most people either sold it at $95 before it hit $300, or failed to buy it again when it hit $120 again on the way up. Just holding it (pending no reason to sell as defined above), and then buying each month, clearly produced superior results even from the bottom of the housing crash.

This is what I have learned and often disregard through bad habits and too much time on my hands sometimes, but is my investment philosophy now. I have a 20 year window in mind, and frankly I’ll probably be in demand in my profession long past that, so our situations differ, but the Foolish way of doing things (although a bit shy on SELL sometimes) has real merit. Believe it or not.

Tinker

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Most people keep buying more and more stocks looking the the next MSFT-AAPL or whatever. They wouldn’t know what it is even if they tripped on it—And even worse buying their 100 or 200 shares of MSFT back in the day wouldn’t mean anything because most people will not add as the price goes up and eventually will get frightened by a 20K or 50K profit they will sell and give most to the tax man and then unfortunately probably buy something else and promptly lose the money.

B&W, you have a unique perspective on investments, which is interesting to hear. However, I have to say that I’m really sick and tired of your holier than everyone else attitude and talking about “most people” in generalities for which you have no supporting facts or documentation.

TMF is mostly about about Buy and Hold, and adding to winners. Saul’s philosophy is a version of that which adds frequent reviews of long term prospects into the mix. Very very few people here say “my stock went up 200% - I’m selling to lock in profits even though I think the future for the company is very bright.” One of the Gardner brothers is sitting on a 100 bagger in Amazon, for instance. I myself on sitting on some very nice gains in TSLA, and don’t mind riding the ups and downs of the stock - I’m happy to use options during the down times to make money since I’m confident in the long term prospects.

I also feel that you also to realize that everyone’s situation and perspective is different. You talked about a $180/month mortgage payment like it’s some big nut to crack. Where I live, that’s more than order of magnitude of the typical mortgage payment - and has been that way for decades. Getting sick young has to suck, but my point isn’t that my situation is better or worse than yours, just different.

Our past shapes us. My father died younger than I am today. He owned his own business and worked 6&1/2 days on it full time with only 1 week off per year. He died at work. I wasn’t going to let that happen to me - I wasn’t going to be like my dad and spend my young healthy years working just to build a nest egg that I might never live to enjoy. But, I don’t go about recommending that to others.

So, please insisting that investing in AMZN or AAPL or similar is a fool’s errand since we’re too stupid to profit from it anyway. Give us the credit we deserve.

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Even in 2000, the year of the Internet Bubble bursting, I was lucky enough to sell out of all my internet stocks before the crash, but I didn’t go into cash. I just bought non-internet stocks

It’s enough to have to decide which stocks, without having to guess when too.

This. Is. Everything. Thank you Saul. The threads on “Enjoying the Ride?” and “Staying Fully Invested” have provided some interesting Sunday reading. I’ve perused with vacillating interest and ambivalent thoughts of “that’s about enough – when can we get back to discussing stocks we like!?” and “this is really intriguing, let me google the levels of US currency in circulation or money supply vs GDP growth” or some such.

But at the end of the day it really comes down to, no matter what GDP growth is like, no matter what the FED does, whether we have low interest rates on mortgages or high or whether we have good employment or high unemployment or stagflation or WHATEVER, and even no matter whether the S&P 500 (or any other index) returns 4% or 10%, we all have to make money. And unless we want to work 40 hours a week until the day we die, or live on rice and beans, or live on the generosity of others, we have to invest some of our money in good investments, because cash depreciates and we hope to live a long time. We can invest in a friend’s business, play the slots, buy savings bonds, put it all in a money market account at 0.7% interest, buy real estate…or we can buy stock in companies we like, like Amazon.

This last opportunity, when you stop to think about it, is kind of amazing. Personally, I don’t believe anyone can predict what the market will do next. But I can tell you some of the thoughts and expectations baked into INFN’s or SKX’s 20% or 30% rise the other day. I could tell you 2 years ago that Under Armour was extremely expensive for an apparel company no matter how fast they were growing, and unlikely to beat the market. That’s a sell. I could tell you (and did) that SHOP was an incredible bargain at $40 a couple months ago and that you should probably buy as much as you could afford (like I did) because you were not likely to see those prices again.

The point I’m making…or technically, the point of Saul’s I’m underscoring…is that it’s actually easier, and possibly even less risky from a certain perspective, to invest in individual companies than in the stock market as a whole. I don’t think we’re approaching irrational exuberance. But when we do, an index fund will not be a good place to be. But a company that is undervalued sure will. Because even though it will rise and fall with the market, over time it will rise as the business grows and prospers.

I plan to grow my portfolio and prosper by investing in companies that do the same, not by timing the market and getting my cash in at the right time – like betting on black at the roulette table and hoping it doesn’t come up red.

Bear

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“Those that have anticipated a pull back that hasn’t happened will probably remain on the outside watching the market climb and not be willing to buy back in at higher prices, and not participate in a rising bull market.”

So this statement I can only gather that you are guaranteeing that we continue going forward to be in a bull market. Quite a bold statement.

There are others that are fully invested that might actually be down for the year.

Then there are others like myself that are over 50% cash and still besting the S&P handily.
I’ve given my holdings before, only 7 stocks and all in the green. All doing fantastically well YTD. Oh actually 8 holdings now as I added TWLO a couple of weeks ago.

Three years ago I pulled out about 1/4 of my portfolio to buy a loft in Santa Monica. In doing so one could look at it as missing out on the last three bull markets for 25% of my portfolio. What is not seen is that my investment in Santa Monica real estate has already climbed 50% in value.

I also am not retired. I think you have mentioned that you are.
I have 4 companies I am partners in paying me a substantial monthly income, so each month my cash position continues to grow unless I’m constantly investing each month, which I am not. I only buy when I see an opportunity I am comfortable investing in, and it’s not only stocks. I invest in opportunities.

So there is so much more to general statements like “I’m fully invested”, or “I’m raising cash”.
You have to look at each individual financial portfolio, their age, their disposable income, their working status, single, married, kids nearing college, etc., before you might claim that someone is missing out because they may not be invested “fully” in stocks.

Chris

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“In doing so one could look at it as missing out on the last three bull markets for 25% of my portfolio.”

Sorry, meant to say “the last three years of this bull market”.

Chris

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You talked about a $180/month mortgage payment like it’s some big nut to crack.

My 2 cents: In the context of time and his circumstances it could be very big deal. I just came back from a walk/ jog of 5 miles. About six months back, I sat in a chair for a full 1 minute and cried in joy. That experience taught me never underestimate anyone’s circumstance or situation.

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In the context of time and his circumstances it could be very big deal.

As I said:

I also feel that you also to realize that everyone’s situation and perspective is different.