What to do with your cash now?

The Motley Fool

I was almost knocked off my feet as the young man blindsided me from the left. What on earth was he playing at?

It turned out he was only trying to overtake me to the sashimi counter at one of those popular all-you-can-eat buffets in Singapore.

Tongs and all

He then, much to my horror, shovelled the entire contents of one of the serving platters onto his plate. It would have been easier, quicker and less painful for me to watch, if he had just taken the entire dish – serving tongs and all – back to his table.

Why do people do that? Why do they feel the need to pile as much as possible onto their plates? Don’t they realise that there is plenty more of where that came from.

But here is a quick question for you: Do you refer to these fixed-priced meals as eat-as-much-as-you-can or eat-as-much-as-you-like buffets? There is a difference. What’s more, the difference is more than just semantics.

Eat-as-much-as-you-can suggests an intention to devour as much food as your stomach can tolerate. Eat-as-much-as-you-like, on the other hand, implies a modicum of self-control.

Eat-as-much-as-you-can is gluttony. Eat-as-much-as-you-like is classy.

A $50-billion headache

There is an uncanny similarity between an all-you-can-eat buffet and investing in the stock market.

Just recently, I read a report that Warren Buffett is sitting on more than US$50 billion of cash. What’s more, his coffers are growing at a rate of over US$1 billion a month.

That is a serious amount of cash – probably more cash than Buffett would like to have on hand.

Some might suggest that Buffett is trying to time the market. But there is world of difference between timing the market and waiting for the right bargain to come along.

Buffett is waiting for a “fat pitch”. As he once noted: “You don’t have to swing at everything – you can wait for your pitch.

Peter Lynch said something similar: “If you can’t find any companies that you think are attractive, put your money in the bank until you discover some.

Waiting for the right investing opportunity is not the same as timing the market. Far from it.

Where’s the value?

Currently, many shares have risen significantly from their 2009 lows. Five years ago, we could have bought shares in Osim International (SGX: O23), Raffles Medical (SGX: R01) and BreadTalk (SGX: 5DA) for a fraction of what they cost today.

Over the five years, Osim has increased almost 5,000%; Raffles Medical has gone up five fold, while BreadTalk has jumped from S$0.25 to S$1.36. But are they still good value today?

When we buy shares, it is crucial to weigh up each stock on its merits. If the advantages are not readily apparent, then it could be better to wait until it does.

That is not easy, though.

Charlie Munger, Buffett’s partner at Berkshire Hathaway, once quipped: “It takes character to sit there with all that cash and do nothing. I didn’t get to where I am by going after mediocre opportunities.

Chronic indigestion

Thankfully, most of us, unlike Warren Buffett, do not have to wait too long for our fat pitch. Buffett’s portfolio, you see, has become so large that very few businesses are big enough to warrant his attention.

We, on the other hand, have a much bigger universe of stocks to choose from. But just because we can buy almost anything doesn’t mean that we should buy everything.

Warren Buffett once pointed out: “The dumbest reason in the world to buy a stock is because it is going up.” His sage advice is all the more relevant today as stock markets regularly scale new highs. It is very tempting to take a swing at everything.

But like sophisticated diners at an all-you-can-eat buffet, we should try to be discerning about what we invest in.

Eating everything in sight could give you chronic indigestion, if you are not careful. But carefully choosing what you eat is the smart way to get maximum value for your money.

A version of this article first appeared in Take Stock Singapore.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your FREE subscription to Take Stock — Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock — Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.

Like us on Facebook to keep up-to-date with our latest news and articles. The Motley Fool’s purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.