Nostradoofus » panic http://nostradoofus.com armchair futurology and stuff. Sat, 26 Jun 2010 05:51:00 +0000 http://wordpress.org/?v=2.8.4 en hourly 1 The Option Value of Cash http://nostradoofus.com/2007/12/14/the-option-value-of-cash/ http://nostradoofus.com/2007/12/14/the-option-value-of-cash/#comments Fri, 14 Dec 2007 09:50:00 +0000 wemitchell /2007/12/14/the-option-value-of-cash Equity investors often feel obligated to remain fully invested, because equities have a much higher average rate of return, at least historically.

But you can think of cash as an option, conferring the right, but not the obligation, to pick up assets cheaply during panics. Unlike other forms of option, this one pays you a premium, and never expires.

This option is only useful if you can tell the difference between a cheap and an expensive equity.

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