Moneycontrol, May 12, 2020
Experts suggest that it is difficult to fundamentally measure the exact top and bottom of the market, but one can hold on to some dry powder in these uncertain times.
When legendary investors like Warren Buffett do something, the world tunes in and takes notes. Berkshire Hathaway may have reported a loss of about $50 billion in the first quarter, but Warren Buffett is still sitting on a cash pile of more than $100 billion.
Berkshire’s cash stake was at $137.3 billion in the January-March quarter, reflecting the difficulty in finding good places to invest, said a Reuters report. Warren Buffett also confirmed that Berkshire in April sold its “entire positions” in the four-largest airlines, and said that he “made a mistake”.
Warren Buffett’s letter to shareholders, as well as commentary during quarterly results, are considered sacred text for value investor community. And, this time is no different. At a time when there is an environment of fear, and most equity markets across the globe including Indian have witnessed a fall of about 40 percent before recovering – the next big question is should we sit on cash.
We at Moneycontrol asked the same question to experts, fund managers and they agreed that Buffett’s principles of sitting on cash make sense but for long-term wealth creation, your portfolio should be at least 35 percent invested into equities.
“The Oracle of Omaha is one person who has seen a lot of market cycles in his lifetime and no doubt has been one of the judicious investors in such uncertain time picking up companies offering long term value to its portfolio,” Hemang Kapasi, Portfolio Manager – Equity Investment Products, Sanctum Wealth Management Private Limited told Moneycontrol.
“Having said that the pandemic scenario and the probable impact on economies and sectors across would largely be felt in the days to come giving reasonable insights into the impact on various businesses which shall present opportunities to make more informed decisions,” he said.
Experts suggest that it is difficult to fundamentally measure the exact top and bottom of the market, but one can hold on to some dry powder in these uncertain times which can be effectively used if markets present an opportunity, they say.
Warren Buffett is a very large and long term investor, always invests in a big way if it is cheap compared to its intrinsic value and has strong earnings growth expectations in the coming decade.
“We as individual investors should look at our own assessment and needs for investment at regular periods of time. A certain part of cash should always be kept in the portfolio for crisis or unforeseen times of an individual,” Vikas Jain, Senior Research Analyst at Reliance Securities told Moneycontrol.
“Well as broader markets and indices have moved up in the range of 25-30 percent from bottoms in a very short span of 30 days there could be some profit booking or pullbacks in overall markets with respect to the earnings season and we could inch lower from current levels,” he said.
Jain further added that this could be a good opportunity to invest in equities as an asset class for better returns over a longer time frame of more than 5-7 years as other assets could be less risky but rewards are also very meagre to beat the consumer inflation.
How much should be invested?
Keeping some cash aside is always a good idea for equity investors. And, at the same time, investors should avoid investing or trading with borrowed money.
If someone plans to construct a fresh portfolio then investing at current levels might be a good idea, for the rest who are already invested portfolio allocation is the discipline that needs to be followed to realign portfolio.
A minimum of 30-35 percent exposure to equities would not be bad, hence, investors should realign their asset allocation if required, suggest experts.
“Warren Buffett was already sitting on a cash pile of over $100 billion throughout last year and raised around $6 billion from the airline sale proceeds. Compared to the cash pile in the past year, the recent incremental cash is a smaller sum,” Nirali Shah, Senior Research Analyst, Samco Securities told Moneycontrol.
“Exiting equities completely and sitting on cash would be unwise, instead Indian investors should keep an eye on quality stocks which have corrected significantly and whose business models are expected to remain strong post-COVID as future investment bets. 35 percent exposure to equities in such times would be a safer approach,” she said.
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