I got an interesting question, "How much cash are you holding percentage wise?"
I thought to share with you my answer as I'm pretty sure this is a question many people are also asking how much cash one needs to hold, given the current market condition. This is probably especially true for me as I have been constantly talking about risks these days. So logically you must think I'm holding a large sum of cash proportion-wise. Unfortunately I cannot give you a straightforward answer to this question, not because I'm trying to hide something but I literally cannot!
You see, I'm not a pure investor, meaning buying something for the long term and then just sit and wait for it to work out. Yes, I do have a large pile of money investing in quality dividend stocks for the long term via DRIP, for which I hardly touch them. This is part of my portfolio that I expect to bring me tons of money in the long run with the very powerful dividend increasing over the long haul. If you are not sure what I'm talking about, here is a good blog I posted some time ago that should give you an overview about DRIP: My wife's "chicken hatching theory".
In addition to long term investing, I'm also a very active trader as many people know. Even for that, it is not so straightforward that I can easily describe how I'm using my money for it. I have relatively longer term trading positions which usually can last for months but at the same time I'm doing very extensively short term trading in terms of weekly. While I do hold a large sum of cash but percentage wise, it is constantly changing for me often in terms of days, if not hours. So the real question for me is how I'm controlling my risk for doing such frequent and ultra short term trading? Two aspects: for one I tend to do trading either long or short for those stocks already on the extreme moves that per my TA, I believe they are either overbought (so I short them) or oversold (so I go long for them). After such kind of extreme moves already, the risk is generally substantially reduced even if I'm wrong on the immediate direction. Another important part is that when I go long and short at the same time for different stocks, I basically create a hedge for myself already as both tend to move in a different direction. By using some special option strategies, I often can win for both at the same time even, as long as the stocks are fluctuating within certain ranges. In other words, even though technically speaking this amount of money is not really cash, it is kind of cash for me to generate income every week. Actually I'm talking about tens of thousands of income each week I'm currently generating. E.g. ZM crashed recently due to the negative earnings reaction but it was the time I harvested several tens of thousands from its overreacted selloff. On the contrary, I earned quite a bit from bearish trading for FDX due to its overbought condition during the period as well.
See the short term performance from my trading account for the past one month and 3 months, even though the market has basically not moved too much due to the volatility around the election.
Having said that, I have to admit that I indeed hold a very large cash pile, which is in a special vehicle: Whole Life Insurance. Of course I'm not talking about the traditional WL which is usually very expensive and not a good deal in general. My WL is a special one rich in cash value (CV) with a high interest/dividend earning. I'm holding a very large WL policy, which is like a personal bank for me as I can use its CV whenever I'd like for whatever purposes. E.g. I used it to pay off my second home mortgage and my son used it to pay his expensive MBA tuition and living expenses in France. Since I have accumulated a huge pile of CV in the policy, this is the real fluid cash that I can use anytime. I was literally thinking to use it for bottom fishing during the Mar selloff but unfortunately the recovery was too fast with a V shape which was not what I had expected. So I missed the opportunity to use my CV at that time. But I'm always ready to deploy the cash for some big moment, some sort of severe black swan type of events with a prolonged market crash like the Dot.com or 2008 market crises. That will be a great time for me to use the real free cash for beyond normal returns. For now I'm just enjoying the high interests/dividends to grow the CV pile within the policy day and night while waiting for the next big moment! For more detailed discussion about my special WL, see here:
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