Video Link : https://youtu.be/1NAwewQ8sw8
In this episode, Guy Spier was asked how does he decide how much cash to have in his portfolio?
In this episode, you’ll learn:
Guy Spier's view on cash holding in a portfolio.
Is willpower a limited resources and how it affect us?
When to sell a stock?
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GUY SPIER 00:00
The question was, how do I decide how much cash to have in my portfolio or other kind of high level decisions like that?
And so I think that is a classic example of false optimization. It's a classic example of trying to find the answer to something that doesn't exist and it's a waste of brain cells in a certain way.
So another idea that I didn't touch on is this guy Gerd Gigerenzer, so the wonderful experiment is you take children, you put them in a room, and then they have to take an exam. So in one control group you put them in a room, there's nothing on the table, they wait for five minutes, they go take the exam. The other room, there's chocolates on the table, you say to the children, don't eat the chocolates. You can't eat the chocolates. Now, go to take the exam.
And the children comply. They don't eat the chocolates, but they perform much worse on the exam. And the idea is that there is – the brain has a certain amount of willpower. There's a limited amount every day. And literally just preventing themselves from eating the chocolates is using up that willpower and it reduces their ability to concentrate in the exam.
And that's why anything important that we want to do in life, you know, like I've figured out that the only time for me to workout is first thing in the morning. It's the only time that I have the willpower to do it. Even if I wait an hour or two we're done.
And so we really want to conserve our willpower for things that count, and I think that following the stock tickers, having a screen open, which is constantly – You know, so we know that reading is more stressful if you're on a web screen because your brain is constantly trying to decide whether to click on the link or not.
And if you have a – and that literally uses up, it uses our brain energy and if you have just a page, that, all of that question mark goes away so we can focus on the page. So it's all about conserving energy for the things that count.
And so if you're coming from my perspective, and I really can't predict where the market will go in the short run. And I don't even know – you know, I can't even be certain that the companies that I'm investing in, I can't be 100% knowledgeable that I know enough about them to make the investment.
What I'm trying to do, like an ant colony, is to create habits and behaviors that improve the probability that I will outperform the market. And that comes down to, in the case of cash for me, I'm not trying to manage the amount of cash. If I see something that makes a huge amount of sense, I'm doing it, and if I see, if I don't see something that makes a huge amount of sense, I let the cash build up.
The same way I'm not trying to sell investments when they get to – probably if they get ridiculously overvalued I would like to believe that I would sell them, but – So you know, one of my investors asks me, do you sell – you know, do you sell at, you know, if the value is 100, do you sell at 50, 60, at 100, 120?
And I kind of try to explain that it's not like I know the value is 100. I kind of know that it's probably undervalued at 50 and it's probably overvalued at 200. You know, and in the middle of that range, that's the kind of uncertainty that I'm dealing with. In the middle of that range, what I'm trying to do is minimize transaction costs, because we know that transaction costs are really important.
I don't know if that's helpful.