We meet a lot of people. It is one of the advantages of investing across a large universe of different strategies and, of course, being a family office helps a lot too. It gives us insight into how people think and it gives us pause and food for thought, as we draw our own conclusions. It really is all about data, flows, and ultimately probabilities that determine how we make our decision to invest our money in the end.
So, what are we hearing and what does this have to do with the risk of not investing? Well, as it happens we are inferring that people are worried that the markets are overheated, everything is expensive and there is little trust in central banks and governments to sort out the headwinds they have caused. Quite a few people are therefore sitting in cash, waiting for a better entry price.
The reasoning I can understand, but maybe there are some cheaper ways to take away this worry. And, by that we are talking about opportunity cost. For Sterling and Euro investors, the interest one can earn on cash is virtually zero. With inflation running close to 2%, that means it costs at least 2% per year to do nothing. You could almost think of this as a (very expensive) management fee for your cash.
But that’s not all. We know that there are yields to be gained: one just has to look at the performance of property, equity markets and even the fixed income markets. All have produced large gains in the last 9 years and, by some measure, the cost of sitting in cash during this time is more than 400% (!) in missed performance.
If you are still not convinced, and you think that you have the ability to predict the future and the next crash, consider this: I too once thought that I was blessed with this divine gift. I was reassured by the fact that I did call quite a few things right in my days. And there it was, I predicted the greatest financial crisis the world has ever seen and bet against the markets to great abandon. Only to suffer through five long years as the greatest commodity boom the world has ever seen, ripped apart my resources (pun intended) to withstand such losses. Ironically, I stopped out just a few months ahead of the beginning of the great crash of 2008. Timing really is a female dog.
Please also see our earlier post The Risk of Not Investing for more of our thoughts.