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Fund Manager Q&A: USAA's Matt Freund Defends Holding Cash
I always pay more credence to an interviewee like this, rather than the ( more common type of) interviewee who superficially predicts "9-10% upside over the next year" (which is the long-term average return, albeit with frequent and very large standard deviations along the way).
Also, good to see an investment professional who doesn't feel that the price of an asset class (whether dear or cheap) is an irrelevant piece of information in determining one's asset allocation.
The most trenchant response from the interview: "People implicitly make the assumption that the market owes them a good choice."
I like reading articles that confirm my thinking. Currently, I'd rather be cash heavy rather than equity heavy due to stocks being currently well overbought by my thinking. In addition, I am light in fixed income due to anticipated rising interest rates. According to a recent Morningstar's Instant Xray analysis my portfolio bubbles at about 25% cash, 20% income, 50% equity and 5% other.
My take-a-way from the article is one might do well to hold more cash (dry powder) than one normally would; and, in this way one can take advantage of buying opportunity when it presents itself. In addition, the author favors high yield bonds in the fixed income area (I'am thinking high yield short duration) and emerging markets for those with a long term outlook in the equity area.
I hate reading articles that say to wait patiently with cash for better ops. Sure, sure. when might that be? Or maybe when you finally decide to dive in again, it will all be more expensive.
My take away from this article had less to do with the importance of cash though I did like the idea of harvesting cash as "dry powder" and more about the opportunities in High Yield bonds in the short term and everything else in the long term...especially emerging markets equities long term.
To me, cash is a short term position that stops long term investors from thinking they need to act irrationally in the short term.
Try to think of selling long term assets much like Jimmy Buffet describes the process of getting a tattoo... "It's a permanent reminder of a temporary feeling."
Comments
I always pay more credence to an interviewee like this, rather than the ( more common type of) interviewee who superficially predicts "9-10% upside over the next year" (which is the long-term average return, albeit with frequent and very large standard deviations along the way).
Also, good to see an investment professional who doesn't feel that the price of an asset class (whether dear or cheap) is an irrelevant piece of information in determining one's asset allocation.
The most trenchant response from the interview: "People implicitly make the assumption that the market owes them a good choice."
My take-a-way from the article is one might do well to hold more cash (dry powder) than one normally would; and, in this way one can take advantage of buying opportunity when it presents itself. In addition, the author favors high yield bonds in the fixed income area (I'am thinking high yield short duration) and emerging markets for those with a long term outlook in the equity area.
To me, cash is a short term position that stops long term investors from thinking they need to act irrationally in the short term.
Try to think of selling long term assets much like Jimmy Buffet describes the process of getting a tattoo...
"It's a permanent reminder of a temporary feeling."