It is well known that High Net Worth (HNW) individuals favor a contrarian position when it comes to investing. When analyzed, this stance makes perfect sense. HNWs are primarily business owners who have made money by pursuing business ideas their peers have dismissed as crazy. They saw opportunities when others saw the same scenario as a risk. They persevered when others surrendered.
The HNWs contrarian streak is also seen in the cash allocations. During a time when the American markets are touching all time highs, a number of rich investors are putting cash in the portfolios. They are not the only ones to do so. A number of well known hedge funds and investors are going down the same route. Warren Buffett of Berkshire Hathaway (NYSE: BRK.A) has a massive amount of cash- about $72.7 billion. This comes to a whopping 21 percent of the cash market value.
For Buffett, a cash rich stance is not surprising. His business literally spews cash. One thing, however, surprises the lay investor. Buffett is extremely reluctant to use cash. The obvious answer in this case is absence of bargains. When it comes to the United States, this stance can be particularly applied. The Standard & poor 500 is either a little overvalued or fully valued, depending on an investor’s stance.
Searching for values
It is to be noted that the rich have not pressed the panic button. The fact is that they have a certain value bent, and if the price is not to their advantage, they will simply decline to buy. If one goes by the word of Buffett, this is the mantra to any investment success. He advises that in case of nothing to do, do not do anything at all.
HNW investors also have lesser appetite when it comes to taking risks or speculation. The past few months have seen these investors leaving speculative positions. They have also become extremely cautious concerning high risk and high return scenarios. They become doubky sure prior to committing to any new opportunity. This caution is a trait of their contrarian habit. When everyone loves to take risk, they are searching for ways to reduce it.
HNWs love to harvest gains. In 2015, a number of them invested money in previously beaten down sectors like oil and gold. Many of them have also invested in base communities. These opportunities have made large amounts of money from then on.