Go To Cash Says Buffett Next Door


I like this.


An eternal optimist, Liu-Yue built two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a searchable content platform and business tools for knowledge sharing and financial education. Oxstones.com also provides investors with direct access to U.S. commercial real estate opportunities and other alternative investments. In addition, Liu-Yue also co-founded Cute Brands a cause-oriented character brand management and brand licensing company that creates social awareness on global issues and societal challenges through character creations. Prior to his entrepreneurial endeavors, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group where he worked with senior management on multiple bank-wide risk management projects. He also had a dual role as a commercial banker advising UHNWIs and family offices on investments, credit, and banking needs while focused on residential CRE, infrastructure development, and affordable housing projects. Prior to M&T, he held a number of positions in Latin American equities and bonds investment groups at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities at Steinberg Priest Capital Management (family office). Liu-Yue has an MBA specializing in investment management and strategy from Georgetown University and a Bachelor of Science in Finance and Marketing from Stern School of Business at NYU. He also completed graduate studies in international management at the University of Oxford, Trinity College.

From Forbes Blog, posted by KEN KAM Marketocracy.com,

After watching the stock market drop 50% twice in the past 10 years, who can blame investors for wanting to stay in cash. At least you know you won’t lose money if you stay in cash. Many advisors believe this is not rational and that eventually people will put their cash back in the market.

But Chris Rees, a seasoned investor and Marketocracy Master, believes holding a lot of cash makes sense right now. Chris is profiled in Matt Schifrin’s new book The Warren Buffetts Next Door: The World’s Greatest Investors You’ve Never Heard Of and What You Can Learn From Them. The book has profiles amazing individual investors and seven have been tracked on Marketocracy.com.

Over the 10 years Chris Rees has been with Marketocracy, his model fund has averaged just over 23% a year. (View his full performance record here.) What’s even more impressive is that he did it while also holding about 20% in cash on average. Today, Chris’ portfolio is 35% in cash, but unlike most investors holding onto cash, the rest of his investments have kept up with the market.

I recently asked Chris why he is holding so much cash right now. Here’s what he had to say.

I think it’s the worst market I’ve seen in 20 years. If you think of your house, you’ve lived in it for 20 years. You could switch all the lights off, and you’d still be able to find your way around. You’d even still be able to find the mop, the toothbrush, the light switch, where you put your shoes, and the refrigerator. Now imagine someone takes your house, turns it upside down, then onto its side, then shakes it violently for an hour, and then sits it back down. The lights are off, and you can’t find anything. Random things are in illogical places, and nothing makes any sense. Are you standing on the floor or the ceiling? That’s the way Chris Rees feels about the current market. He thinks it’s all screwed up.

Anyone who has worked hard, lived within their means, and saved over the last ten years is getting taken advantage of, while anyone who screwed up or lived beyond their means is getting bailed out. It’s an upside down economy.

The government is printing money while the economy stagnates, and this government solution to deal with too much debt is just creating more debt. It’s an interesting situation when the banks are bailed out with free money, but businesses can’t get a loan. Even if a business could get a loan, they now have more incentive to invest abroad than in the United States so we are exporting liquidity and creating bubbles and instability everywhere.

Chris says that since October 2008, the goalposts have been moved so many times he’s “blurry eyed” trying to keep track of them. Incentives, likely future taxation, and future regulation are all in a flux. Profit is capitalism; losses are socialized. It’s all upside down.

There’s nothing to invest in, because right now the market is too expensive. Only the continual money printing is keeping the market up. The more the government prints money (QE1, 2, 3, 4 etc.), the closer we move to a likely Argentina Armageddon where all bets are off. However, if we stop printing the money, and we must stop the printing, the economy will tank and the market along with it. But at least at that point, we would be living in a real world instead of an upside down fantasyland where the entire world is becoming more unbalanced each day.

If we get more QE, the market may go up but for the wrong reasons, and Chris won’t buy into that. Even Greenspan has said that more QE is a dangerous game to play.

So how does Chris position his portfolio right now?

Nothing (except natural gas and Bank of America) looks cheap. Just about everything else looks too expensive. Money earns nothing. Sitting in dollars is not Chris’ favorite idea, but it’s the only idea he has at the moment. At some point, he expects to see something hit the fan, which will give him the opportunity to put some capital to work. Something always hits the fan somewhere. It’s human nature. What’s not human nature is having the tough discipline and patience to stand aside and wait for it to happen.

At Marketocracy, his 10STX portfolio is limited to cash (35%), short gold (DZZ), long natural gas (UNG), short the market (TWM), and long a too big to fail banking disaster (BAC).

Amazingly, even with 35% cash Chris is not settling for today’s’ historically low interest rates; His Marketocracy portfolio is still up more than 4% YTD.

To receive a free email update when Chris Rees and other Marketocracy Masters change their top 5 holdings, click here.

Disclosure: I am the portfolio manager for mutual and hedge funds advised by Marketocracy Capital Management, an SEC registered investment advisor. Before relying on the opinions expressed in this article, you should assume that Marketocracy, its affiliates, clients, and I have material financial interests in these stocks.

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