The Stay Liquid and Wait Strategy

Felix Salmon, finance blogger at Reuters, says that in today's risky economy one can no longer rely on the old "buy low, sell high" traditional investment strategy. In order to minimize risk in the possibly "bimodal world", he says, it is best to take an outlook that cash is king and an option on the future.

In that world, an opportunistic wait-and-see approach makes a certain amount of sense: you wait to see which direction the bandwagon is moving, and then you jump on it. You'll miss the first part of the move, but at least you won't end up getting crushed.

Is this the best strategy to survive the turbulent markets?

He also makes a case that equities are safer than high-grade debt.

Liquidity, here, is key -- and equities in general are very liquid investments. Here's the plan, then: sit on a portfolio of large-cap US stocks for the time being, and maintain exposure, if you have it, to expensive, fast-growing markets like Brazil. But look for market moves, and create a list of "tripwire" signs that the waveform has collapsed and we're moving in one direction or the other.

What do you think?

Link to opinion piece

Comments (19)

Apr 23, 2012

Nope, he's an idiot.

Relying of trends, fads and market sentiment as the foundation of your investment strategy is going to get you burned. You may as well sign up to the technical analysis doctrine

He's right about staying liquid and waiting for the right opportunity, but wrong about how he picks those opportunities.

Apr 23, 2012
Oreos:

Relying of trends, fads and market sentiment as the foundation of your investment strategy is going to get you burned. You may as well sign up to the technical analysis doctrine

Biggest load of shit that has ever been posted on this forum. Of course, I'm not referring to the notion of jumping in on fads or Cramer's next hot stock pick, but rather quantitatively exploiting the non-stationary nature of markets in their inherent tendency to create disequilibria and bubbles. Do refer to my sig.

    • 1
Apr 23, 2012
Macro Arbitrage:
Oreos:

Relying of trends, fads and market sentiment as the foundation of your investment strategy is going to get you burned. You may as well sign up to the technical analysis doctrine

Biggest load of shit that has ever been posted on this forum. Of course, I'm not referring to the notion of jumping in on fads or Cramer's next hot stock pick, but rather quantitatively exploiting the non-stationary nature of markets in their inherent tendency to create disequilibria and bubbles. Do refer to my sig.

And how are you going to know when to step off before things take their tumble? Are you now claiming to be able to predict the movement of markets? Please!!! Exploit cycles, sure, but to claim to be able to "know" short term fluctuations is cretinous.

Apr 23, 2012

In that world, an opportunistic wait-and-see approach makes a certain amount of sense: you wait to see which direction the bandwagon is moving, and then you jump on it. You'll miss the first part of the move, but at least you won't end up getting crushed.

That is what "mom and pop" investors do, and they are the ones who buy high and sell low.

Apr 23, 2012
Cola Coca:

In that world, an opportunistic wait-and-see approach makes a certain amount of sense: you wait to see which direction the bandwagon is moving, and then you jump on it. You'll miss the first part of the move, but at least you won't end up getting crushed.

That is what "mom and pop" investors do, and they are the ones who buy high and sell low.

I fail to see your logic. Can you elaborate?

Apr 23, 2012
Banker88:
Cola Coca:

In that world, an opportunistic wait-and-see approach makes a certain amount of sense: you wait to see which direction the bandwagon is moving, and then you jump on it. You'll miss the first part of the move, but at least you won't end up getting crushed.

That is what "mom and pop" investors do, and they are the ones who buy high and sell low.

I fail to see your logic. Can you elaborate?

To quote Howard Marks: "What the wise man does at the beginning, the fool does in the end"

    • 1
Apr 23, 2012
Banker88:
Cola Coca:

In that world, an opportunistic wait-and-see approach makes a certain amount of sense: you wait to see which direction the bandwagon is moving, and then you jump on it. You'll miss the first part of the move, but at least you won't end up getting crushed.

That is what "mom and pop" investors do, and they are the ones who buy high and sell low.

I fail to see your logic. Can you elaborate?

The guy suggests it's better to wait and see what's hot before putting your money in, and he also says you can look for signs that market is turning down, avoiding getting crushed.

I was referring to the fact that "mom and pop" investors tend to invest their funds near market peaks (jumping on the bandwagon), and they also tend to get crushed and pull their funds at market lows.

If you can scan for tripwires for negative movements, why can't you scan for positive ones?

Apr 23, 2012

This seems stupid to me. Your cash will just become less valuable if you don't do anything with it. That said, Warren Buffet says he likes to keep at least $10b in cash at Berkshire and he has something closer to $20b in cash now.

Apr 23, 2012

Never did I claim to be able to predict market movements. Regardless, we have crystal balls on top of our desks...

Apr 23, 2012
Macro Arbitrage:

We have crystal balls on top of our desks...

How much they cost?

Apr 23, 2012
Macro Arbitrage:

we have crystal balls on top of our desks...

I have lots of these...they are called lucites. :)

Apr 23, 2012

In other words, the writer's advice is "jump on the bandwagon."*

*- Yet somehow find a way to avoid the bandwagon on the way out!

Good advice coming from someone who is putting all his money in a target-date fund.

Apr 23, 2012
Cola Coca:

In other words, the writer's advice is "jump on the bandwagon."*

*- Yet somehow find a way to avoid the bandwagon on the way out!

Good advice coming from someone who is putting all his money in a target-date fund.

Ugh, nothing wrong with a Target Date fund? Especially if you are a 'mom and pop' investor. Actually, I prefer if more people did this shit instead of trying to read markets themselves when they really have absolutely no fucking clue what they are doing and instead heard their grandkid talk about some 'tweeter or facebooker thing' and think they should buy into it and cry when the stocks plummet later on.

*disclosure, I have my girlfriend in a Vanguard target fund as I dont have time to help her invest, she doesnt know how or care to learn, and vanguards fee is only like .15%.or w/e.

Apr 23, 2012
Nobama88:
Cola Coca:

In other words, the writer's advice is "jump on the bandwagon."*

*- Yet somehow find a way to avoid the bandwagon on the way out!

Good advice coming from someone who is putting all his money in a target-date fund.

Ugh, nothing wrong with a Target Date fund? Especially if you are a 'mom and pop' investor. Actually, I prefer if more people did this shit instead of trying to read markets themselves when they really have absolutely no fucking clue what they are doing and instead heard their grandkid talk about some 'tweeter or facebooker thing' and think they should buy into it and cry when the stocks plummet later on.

But this guy isn't mom and pop, he's claiming to be a bit of an expert, and yea target date may be fine for mom and pop but for someone serious about investing, no so much. He's criticizing this guy's use of it, not the use of it by everyone.

Apr 23, 2012

I am yet to read the article and have no intention of doing so either, but my issue is with the disbelief in being able to capitalize on the herding mentality among market participants.

    • 1
Apr 23, 2012

2008 = herding mentality. AIG jumped on last, but they're doing fine right?

Apr 23, 2012

TDFs, like any other investment, have their pros and cons. That said, they are not part of my ideal strategy, and I think people are better off consulting a professional or possibly using a mix of both index and active funds if they are up to the task.

My problem with the writer is that he is providing serious advice while putting all his funds in a TDF.

My disclaimer - I am still learning, and I am a total rookie.

Apr 23, 2012
Comment