I’m just going to do a bit of an update as I’m still in the midst of a 2 weeks vacation and I just wanted to pen this down before I proceed with my activities.
Throughout the past few years, my position in cash have gone up and down pretty fast as I tend to move my position pretty quickly by taking vesting position in and out of the company.
Cash remains an important part of my strategy to achieve my desired rate of return and hence I would try to ensure that I keep a decent amount of cash in my holdings when I needed them most.
My strategy to keeping a certain allocation of cash in the portfolio is a bit unorthodox because I factor in many things that’s very difficult to put it down into words. Generally, the main idea revolves around taking a strict view on reviewing each of the company in my position and I always ask myself these two main questions:
1.) Would I like to add to this position at the current levels?
2.) If the answer to the first question is no, would I then add to the position should the market brings it down by 10%?
If both answers are a clear no, then it is a pretty obvious situation to divest the position and stay in cash until the next opportunity arises.
The situation for my case is often difficult because of the underlying portfolio of reits that I hold that tend to give out pretty decent high dividend yield in favor of waiting. For example, I could answer no to both my questions above but have to consider the fact that I have to give up a 8% yield per annum unless the market crashes and I could get a higher xirr in the longer run.
I still have 12 equity positions on my portfolio and I’ll continue to review them strictly to keep it down to the best of best that I still think they are worth to keep. On my head, there are already 1 or 2 that I feel worth divesting at this point so we’ll see if the market allows that over the next few days.
I’m not a big advocate of keeping a certain percentage of cash vested for the sake of it because you could end up “losing” opportunity costs by waiting for the market to crash if you are not able to identify opportunities and allocate cash to that position. I think doing this in general is a pretty bad idea because there are clearly more factors to think about.
On the other hand, I’m also not an advocate of holding onto a position without reviewing it regularly as the market tends to gyrate a lot more than we imagine it to be and there tends to be many opportunities that arise once in a while.
When I first started XIRR is important to test my performance and hitting like 15% over 5 years are possible. Once my fund got larger the additional goal will be absolute returns and 15% seems to be slipping away. Is a good to have now since I have expanded to bonds, preference and Reits……
Thanks Cory for sharing your story.
Indeed, as we add in other instruments like bonds or cash, it tends to underperform during a period of bull market but the tide will turn in a bear market.
Great points!
"I'm not a big advocate of keeping a certain percentage of cash vested for the sake of it because you could end up "losing" opportunity costs by waiting for the market to crash if you are not able to identify opportunities and allocate cash to that position."
I'd like to have some cash on hand, for opportunities that if I don't act fast, I don't get it. heheh… But you're absolutely right about giving up 8% for REIT income that is reliable vs 0% holding cash, and might be losing due to inflation.
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