Too Much Cash
“If a cat sits on a hot stove, that cat won't sit on a hot stove again. That cat won't sit on a cold stove either. That cat just doesn’t like stoves.”
– Mark Twain
I used this quote after the 2008 stock market crash and think about it often. Not to be Captain Obvious, but Twain was not talking about cats.
Why it comes to mind so often is that I keep seeing the same problem with new clients coming into my practice. They come in with lots of cash. Almost every new client has some degree of this issue. Conversations with peers lead me believe that this is a very common issue. Most/all of the people with this issue started saving cash (failing to make new stock investments) after the 2008 panic. It has been almost nine years since the correction and still I expect the next prospective client that I meet will have a very high level of cash. It could be said that these folks just don’t like markets. For many, I am their solution to this exact problem. They need someone to get them moving again.
My other favorite quote:
“The market can stay irrational longer than you can stay solvent. “
– John Keynes
Another thing about these clients with cash is that they are otherwise indistinguishable from any other person. These are intelligent industrious people who have simply responded to the very emotional elements of investing in a normal but ultimately unhelpful way. With respect to all investors, this means that if you are waiting for a better valuation or a less ominous market to make your next investment, you could be waiting a long time.
‘Get them moving again’ means reviewing your plan and investment policy. If you don’t have one, create one. Tie your plan to a long term investment perspective. If you have a plan, (all my clients do) review the long term historical returns of an appropriate investment. Look at the ultimate use of the money in question, how far into the future it will be needed and how long it needs to last. With this perspective, cash will have a relatively small role.
What if you invest money right before the next correction? You and I simply cannot predict that but in the long term it will be very much better than literally doing nothing.