How many times have you switched on the Idiot box and found an expert say “cash is waiting on the sidelines to be invested”. I keep wondering what it means? Have you wondered?
- Cash is an asset like any other asset: bonds, shares, real estate, gold, oil, CASH. So when you have cash you just have one more asset in your portfolio. Nothing else.
- When you buy one asset you give up another asset: If you are keen to buy some share you will surrender so much of your cash. When you give your cash to me I give my shares to you. So what has happened to YOUR cash is, it has become MY cash, buy my share has become your share. Simple.
- If you have Rs. 10,000 and wish to buy Deccan Gold from me at Rs. 25 does it mean if you have Rs. 50,000 (you just got a bonus) so you will be willing to pay me Rs. 40 for the same share? After all NOW you have more money? Well, I do not see the connect.
- Remember, when you are buying shares, YOU are selling cash. Cash is ultimately a liability of the government to give you something in return.
- If you think that there is some money waiting in the sidelines very eager to push the share prices high, ouch.
- At what price you will buy a share should not have anything to do with how much cash is available. It has to be a function of what you think that stock price will do. So the moment YOU think that Deccan Gold will be Rs. 40 in one years time, you will buy Deccan Gold BY SELLING YOUR cash. You want a higher return for your cash, SO YOU ARE SELLING THE CASH and buying an asset called ‘equity shares in deccan gold’ and you are hoping to get a return higher than what you would have got in a liquid fund, bank fixed deposit, gold, real estate…..over ‘n’ the time period that you have in your mind. IS THIS BECAUSE YOU HAVE MORE CASH? well that is doubtful.
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