Replies to post #39811 on A.I.M. Users Bulletin Board (AIMUSERS)

[ls7550]

Buffett likes to keep 10% in reserves (cash i.e. T-Bills) for buying opportunities as/when they arise.

You have to accept lower rewards from such cash for the required liquidity as/when such opportunities present themselves as they may be short lived events. Fixed (locked) term Bonds despite paying a little more may prevent you from being able to access/deploy such funds when appropriate (instant access is more preferable).

[SFSecurity]

Hi Clive, I like the source of your user name.

About dips, however, they tend to be more often than once every 20 years. Here is what National Bureau of Economic Research (NBER) says:

(Only the number of cycles are shown. I clipped the rest.)

The amount down varies and the dates of index or stocks high or low points don't really match up to the dates the NBER uses for the trough. Also it it not as clear prior to about 2000.

The last two of the S&P 500, the peak in January 2000 was $1498.58 and the low in July 2002 was $815.28, a 45.6% drop. During July 2007 it hit 1526.75 and dropped to $797.87, a 47.7% drop.

Of course the figures differ depending on which stock or index you use. SPY hit a high in October 2007 of $154.65 and a low of $73.93 in February of 2009, a drop of 52.2%. SHY went from $82.97 in March of 2004 down to $79.69, a tiny drop of 3.9%.

Of course there are the drops of the Great Depression and even further back in the late 1800s. From ~1945 until ~2000 seems to be a special time with lower than common drops when they happen.

If the market takes a dive similar to the last two it will be a great buying time so keep your powder dry.

Best,

Allen