RJ's Research Note

I enjoyed the research note by Jeffrey Saut today. It starts with an excerpt by Adam Smith below.

http://www.raymondjames.com/inv_strat.htm


“Poor Grenville runs a fund, one of a group of funds, and he is in charge of $100 million or so.

. . . I asked Charley why Grenville was suddenly Poor Grenville.

‘Poor Grenville,’ said Charley, ‘has gotten caught with twenty-five million in cash. It’s a disaster. How would you like to have twenty-five million in cash with the Buy Signals you’ve just seen? Come to lunch. Poor Grenville has to lose his cash, right away.’

I know it sounds little funny that having $25 million in cash is a disaster. It sounds just as funny to me as the phrase ‘lose cash.’ When it isn’t your cash in the first place and all you are doing is taking the cash – somebody else’s – and buying stocks with it. But professional money managers love to say, ‘We lost five million in cash this afternoon,’ meaning they bought stocks with it. I guess it sounds professional.

. . . As to why Poor Grenville’s $25 million in cash was a major disaster that is more comprehensible. Grenville should have all $100 million fully invested if the market is coming off the floor; his fund is ‘performance-oriented,’ trying for big capital gains. If Poor Grenville has $25 million in cash he guessed dead wrong at the bottom of the market, and in one career you don’t get too many chances like that. Poor Grenville had gotten himself all ready for a big drop in October and now in January the market turned around and ran away without him. He has to make it up in a hurry.”

– The Money Game, by Adam Smith