The danger of holding too much cash

Today I made a mistake. I was queuing for a counter for about 2 weeks at 1.47. But when the stock started showing surges in its bid and sell volume, I started interpreting it as a sign that the counter will move. Against all reasons, I abandoned my queue and bought at the then sell price of 1.50.


It's only 0.03 cts, yes, and I didn't buy a lot (4,000 shares only), but it was still a mistake. The mistake was not sticking to my plan, which was to queue at 1.47 until it expires or it hits. On reflection, I think there's a few reasons why I did that:


1. I did not do my homework scans on Sunday, which I usually do because I was sick. If I had stuck to my routine, I would have realised that maybe today's funny volume movements are not that funny.

2. I had too much cash lying around. Nearly 50% and was climbing until I bought two counters in the last 2 weeks or so. The danger of having too much money lying around is that you tend to fire more eagerly, sometimes seeing what you mind tells you to see.

I want to take the chance to talk about the 2nd point. This is a relatively new problem for me. I never had the opportunity to handle such a record investment portfolio and a bonanza of cash waiting to be deployed, hence this problem might be more and more frequent ahead. We will all reach there one day. It's best to recognise it and stem it as soon as necessary, which is the real reason for this post. It's to remind the future me to wake up and stop doing adjustments when I should be doing nothing.


If we're doing things right, our portfolio will get bigger and bigger in size. Our money management and our psychology when handling money must also change gear from handling small amount to handling big amount. If your portfolio is 20k, you have a different set of worry from handling a portfolio of 200k. With a bigger portfolio, you also can't do the same thing that you did when you're having a smaller set. You can lose a few 20k, painful yes, but not catastrophically so. Nobody can casually say they can lose 200k portfolio, well, unless you are handling 2 million perhaps.


Some of the things I think we should be careful when handling bigger portfolio size is:

1. Diversification - I'm can't do a concentrated portfolio of 8 stocks. I'm not good enough to know if something will trip up in the companies I invested, so it's better for me to spread the risk to more companies. If one fails, it will not rot and bring down the entire ship. This is very important.

2. Finding a place to store that excess cash that is around. I admit I can't invest 100% at all times, so I will always have some cash lying around. I will always have to find some good place to park that cash and when all my current facilities to max the returns for the cash is used up, I'll have to find new ways to do so. I need to set up a system. I think if the cash is not rotting too much, the problem of wanting to invest eagerly may be reduced or eliminated.

3. How to average in your positions. Now with bigger backing, we can enter in 2 or 3 shots. There's a lot of science on how we can enter with 3 rounds. We can double down, enter at fixed time, enter at fixed interval, enter at subsequent support level and so on. This is vastly different when starting small since we only have 1 good shot if we don't want to over allocate our resources into one single company. The same goes for selling too. We don't have to sell all in one shot. We can sell out in 2 or 3 rounds. I need to experiment and come up with a good system to deal with these, so it's less discretionary also.


Anyway, I've a feeling I'll be blogging more and more about other stuff in the future. However, making silly mistakes is one area that I will never blog less about. If I want to be successful, I should have more and more new mistakes, less repeated ones and more reflections following that haha!