Maintain Maximum Cash Positions……….but
We see no reason, with a 9.1% cost of equity capital, to change our current thinking.
But good values do in fact exist, and so I am not advocating an equity portfolio be 100% cash. In fact, a couple of weeks ago, I wrote stocks could conceivably rise as much as 8% this year, given the current FCF multiple, and a small fall to the cost of equity.
Equities of firms which produce strong, consistent free cash flows, and as importantly, have a return on their invested capital greater than their cost of capital, will see their stock prices rise over time. But investors must buy such firms having a current free cash flow yield in excess of 7%. These firms are priced to comfortably rise to a greater degree than bonds, money funds, or real estate.
Please see related stories, and tables throughout this site.
