Cash Is Not Trash And There Are No Good Longer-term Investments
By Dave Landry | Random Thoughts
Random Thoughts
by Dave Landry
Note: The following was originally published several years ago. Whenever the market gets a little iffy, I dust it off.
Based on the interactions during my weekly Chart Show, it seems that the waiting for trends is creating some performance anxiety out there. “Cash is trash!” was one of the statements made. Relax. Cash is not trash. That’s a cutesy saying, but it simply isn’t true. Things that rhyme are more likely to be believed-whether they are true or not. Exhibit A: “If the glove doesn’t fit, you must acquit.”(1) It’s okay to sit on your hands—and cash. Sometimes the return of capital is better than the return on capital.
"There’s Got To Be Somewhere That I Can Park My Cash !?"
Well, I’m not going to spend my time trying to chase a .000015% yield vs. a .00001% yield (although they have risen a bit since this article was originally published). There’s plenty out there doing that. And, God bless ‘em for their hard work. I’d rather focus my energies on the next big opportunities which will hopefully return many times that amount. Having the cash ready to pounce when those opportunities present themselves is a great position.
The longer that I'm in this business, the more I realize that there are no good longer-term investments-in spite of the diatribes of snake oil salesmen. Yes, something might have decent returns over a 50-80 year time horizon but channeling Sweet Brown: “Ain’t nobody got time for that!” Further, what often happens in between is what kills you. Losing 50% to 80% of your investment can be devastating and demoralizing.
Wait Big Dave, what about the “fact” that stocks always go up longer-term? Well, those metrics are based on an 81-year time horizon.(2) Look no further than the last two bear markets. The S&P, peak-to-trough, lost over half of its value in ’00 and again in ’08. During the same timeframes, the Nasdaq lost 78% and 55% respectively. What about gold? Well, from the peak in 1980 it lost over 80% of its value over the next 20-years. And, in more recent times, it lost nearly half of its value since the September 2011 high. Real estate? Well, we all know what has happened here over the past several decades. Yes, I think that everyone should own the roof over their heads (for numerous reasons), but other than that, it’s not a good longer-term investment.
During the '01/02 bear market, the Nasdaq lost over 78% of its value.
As I often preach, ALL asset classes will lose half of their value at some point in your lifetime. In my short lifetime, I've seen many "halves."
Although gold is often touted as a "long-term investment," it can occasionally lose 50-80% of its value.
One more thought: I recently watched a Youtube of some young punk who is holding himself out there as this financial guru. He said that if you are young, you should buy and hold. That will work "until it don't." As I wrote in my Special Market Update, don't take my word for ANY of this. Plot some charts. Sometimes it takes a decade or two (and a half!) for a market to recover.
Watch the video below and then take the Start and Market Timing Course to learn more about the dangers of "buy and hold:"
Longer-term Investing vs. Trading-Case Closed
So, that’s my short case for trading vs. investing. Now, “trading” doesn’t mean that I’m like the little rat hitting the button frantically for cocaine. I was asked in an interview on Wednesday about the length of my holding period. My reply, as always, was: “at least 10-years, hopefully much longer.” The reality is that the money and position management will take me out much sooner. I firmly believe that you can only predict the short-term with any degree of accuracy, but you can follow trends forever. I’m slotted as a swing trader, probably based on the title of my first two books, but I will stay with trends as long as they move in my favor. I use a stop in case I’m dead wrong. I take partial profits in case the move is only a short-lived one. And, I use a trailing stop just in case the trend does last 10-years, or longer! Watch the video above and others (after you sign up you'll get 2 free courses) for more on this.
May the trend be with you!
Dave Landry
P.S. Well, that's my take on investing for the long-term. Leave a comment below to let me know what you think.
1. I learned this rhyme thing from a speech given by Tom McClellan: “Sell in May and go away” at the American Association Of Professional Technical Analysts meeting
2. Source: Greg Morris, Investing With The Trend