- Has the easy money been made in this market for now?
- Don't be afraid to sit on cash
- Is there a trading opportunity incoming at an online estate agency challenger?
It is beginning to feel like much of the easy money has been made. Ever since the rebound in global equities began in the middle of March 2020, you almost couldn’t help but make money if you bet on stocks. Of course, if you did something silly like piling into GameStop (NYSE:GME) at $400 when it was trading at $20 a few days earlier then you will have been relieved of some of your capital. But, generally, equities have been a good return. The beta has been high and so even if you underperformed the market a little then you would have still done very well compared with prior years.
It's easy to start taking it for granted and think that the market will only ever trade with overinflated valuations, bubbles, and manias. It won’t. Cash has been steadily rising in my account and, as I wrote on Twitter, cash is a position in itself. By holding cash, you’re making an active choice to sit on the sidelines. Many traders believe that you need to be constantly active in the market (as I once did), but the reality is you take opportunities when they present themselves rather than forcing trades. I’ve learned from experience that trying hard to make easy money is an easy way to lose hard-earned money. Another benefit of cash is that it reduces volatility – this means you can have high conviction in your better ideas but the volatility of the account is reduced by the cash cushion. Finally, one extra benefit of cash is that it provides optionality on future trades. Opportunity cost is a real cost of trading – the idea that if you take one trade it means you can’t take others because the funds are already committed is something all traders should be considering.