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Save Some Ammunition!
January 2006
One of the first memories I have of the American
Revolutionary War was hearing the story of the
general's order to his men "Don't fire until you see
the whites of their eyes." Can you imagine the
patience and discipline it took for those colonial
soldiers to sit still and let the British march on them
and then at the last minute opening fire at point-
blank range?
Do you have the discipline and patience it takes to
be a successful investor? Can you sit for a couple of
months with money in a money market account or
short-term CD waiting for buying opportunities to
appear? Warren Buffett is well-known as the world's
most successful investor. Did you know that in the
late 1960's, after a long run-up in the stock market,
and against all conventional wisdom at that time, he
chose to liquidate his investment group and return
their money because he did not see sufficient value
or buying opportunities in the stock market? After
years of run-up in stock prices, Mr. Buffett just
pulled the plug on his investment group and refunded
the cash to his investors. Most professional investors
still punch drunk over the heady stock run-up at that
time thought he was crazy and continued to invest
as if the market could only continue to go up.
As commentator and story teller Paul Harvey would
say, "Now comes the rest of the story." A couple of
years later, when the market dropped by 46% in
years 1973-1974, Mr. Buffett and his friends had the
cash to buy into the stock market and take
advantage of inexpensive stocks whose stock prices
were now a fraction of what they had been. Had
they followed the crowd and remained fully invested,
they would have suffered market losses and not had
the liquid cash to take advantage of the great buying
opportunity that presented itself.
Every year about this time, new money flows into
retirement accounts as our investors make their year-
end, tax favored investments. I can not tell you how
many phone calls and emails I receive imploring me to
quickly invest their funds as the caller "does not
want their money just sitting in a money market
account earning nothing."
Yes, I have been known at this time of year to hold
onto cash in money market accounts until I get a
sense of direction that I feel comfortable with. If you
are one of my investors who finds themselves
frustrated because I am not immediately investing
your funds in the market, please be patient and know
that I may just be waiting "until I see the whites of
their eyes." Let history be the judge of how well we
do over the long-run; do not be in too big a hurry to
invest 100% of your cash into today's markets.
For most of my readers, if the stock market takes off
like a rocket sled, you already have an historically
high percentage of your investment portfolio that will
participate. If on the other hand, the market does
the funky monkey, then it might be nice to be holding
some cash to go bargain hunting. Maybe it would be
easier to think of cash as ammunition that you are
holding as you wait to get an easier shot! |
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