Oct

10

caneOver the years, I've enjoyed and preferred the company of working people. The people I'm referring to are fishermen, lawn guys, lifeguards, surfers, and other blue collar types. These people live without credit, loans, real estate, bank accounts, or any other financial instrument, save for their eventual social security benefits. In the past couple of days, I've had five people come over to my house wanting to buy common stock. Without exception, they weren't able to open accounts at brokers, and want to buy good stocks because they heard that stocks are cheap, and they believe in America. They all came over, cash in hand, asking if I would get down the trades for them. They wanted me to buy the stocks and sign over the certificates to them. I wonder what kind of indicator this is, as I've never seen anything like it.

The Fifth Amendment allows me to decline to answer whether I accommodated their requests.

Stefan Jovanovich adds:

Canes come in all shapes and sizes and styles. My paternal grandmother, who remained illiterate in her native tongue of Polish as well as in English for her entire life (probably because of undiagnosed dyslexia), took grandfather's stash of double eagles saved from digging ditches and bought a 3-story rooming house in Denver after the 1919-20 crash for 12 cents on the dollar. Even in the Depression it generated enough free cash flow for her to send all 3 children to the University of Colorado. The money from the sale of the property after her death sent 1 grandchild to the same school in the 1980s, which may signify more about the relative value and price of education in the 1930s versus the 1980s than anything else.

Vinh Tu responds:

Suppose one is operating on the premise that a recovery will occur, but one has no idea how long it will take, or how low the market will go before recovering. What is the optimal trading strategy? I think it should be some kind of optimal Kelly fraction. If one maintains a constant fraction of cash and equity, as stocks approach zero, one's number of shares approaches infinity, which is nice once they recover. If the stocks actually REACH zero, then hopefully one has also stocked some canned food, ammo, etc and learning the art of shoemaking.

So what is the optimal ratio of cash and stocks? What assumptions do we need?


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