How to Deploy Lump Sums of Money

By Qurren [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)], via Wikimedia Commons

Sleep per Day: (Target) 7h30m / day (Actual) 7h29m / day (103 day average)

Holdings lot of cash to hedge against losses and exploit great bargains has always fascinated me, which is why how much cash to hold and how to deploy lump sums has been something I’ve written about.

But I’m starting to question my previous article called “Aggressive When Opportunities Are Scarce“, where the premise was that when number of stock purchases I can make is greater than opportunities, I aggressively snap up the stocks and vice versa.

The premise is still valid, and I have executed it with my own personal portfolio, but I think it’s too aggressive.

Yes, the reason why I abandoned Shiller P/E as an indicator on how much cash to hold is because if the rate of return is above an extremely conservative discount rate, the huge margin of safety should render market timing useless.

But, if you really try hard enough, you will find enough opportunities to soak up all your funds, which is what happened when I found quite a lot of profitable Hong Kong net net stocks using screener.co.

So essentially, I’m currently fully invested with the money set aside for investments, and it’s making me slightly uncomfortable even though I know investing should be done on a good enough basis.

That’s until I did further research and re-read an article I previously bookmarked called “Do Not Dollar-Cost Average for More than Twelve Months“. The premise is that you should dollar-cost average within 6-12 months for any 5+% cash to stock transition, and at most 18 months for any 30+% cash to stock transition.

And I think combining this dollar-cost average rule with my rule for being aggressive when number of stock purchases I can make is greater than opportunities would help retain the ability to snap up bargains before they dry up while not being fully invested too early.

On hindsight, I should’ve spread out all my investments over 18 months since I started off with so much cash, before I focus more on a 6-12 months dollar-cost average plan if my cash is below 30% of my portfolio.

So what I will do now is to keep holding my current investments since I did buy them at significant discounts and the investment thesis is still valid, but be less aggressive in deploying capital as I accumulate cash from my job and my dividends.

[Disclaimer]

Not advice. No offer. Do not rely. May lose value. Risky. Conflicts hidden/obscured. (Borrowed from Terrence Yang‘s Disclaimer on Quora)

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