Take 25 - Random Investing Notes
A collection of insightful investment pieces to broaden and elevate the investing mindset. Includes: 1) Opportunity Cost of Cash, 2) Bond Reassessment, and 3) The Asset Class of Patience.
The Silent Cost of Holding Cash
One of the strangest things about today’s market environment is how easy it is to feel like you’re winning while quietly falling behind. Your savings account pays interest. Your money market fund pays even more. Treasury bills look attractive on paper. Yet the purchasing power behind those growing numbers can still shrink in real time.
This is the uncomfortable truth behind negative real rates—when inflation rises faster than the interest you earn. The statement balance goes up, but the value of what that balance can buy goes down. It’s a tax you never see itemized, and that’s what makes it so effective.
Beyond Nominal: Understanding Real Interest Rates
Real rates are interest rates adjusted for inflation, showing the true cost of borrowing or the real return on savings. In simple terms, they reflect how much your money actually grows (or shrinks) in purchasing power after accounting for rising prices.
For most of the last decade and a half, savers have lived in this environment. Cash hasn’t been “bad,” but it hasn’t been the safe harbor many assume either. It’s more like a slow leak: quiet, manageable, but persistent.
Why does this matter? Because it changes the incentives across the entire system:
Savers pay when real rates are negative.
Borrowers benefit, especially those who locked in long-term fixed debt before inflation picked up.
Asset owners win when supply can’t easily expand—think quality businesses, scarce real assets, and productive equities.
None of this requires a macro forecast. It’s simply the math of the current regime.
The takeaway isn’t to avoid cash entirely—there are seasons when optionality matters more than return. But it is a reminder to understand the trade-off. Cash buys stability, but in a negative real-rate world, that stability comes at a price. And the longer the regime persists, the more important it becomes to own assets that can outrun the silent erosion.
Why Bonds “Stopped Working”
The Old Deal: Stocks Zig, Bonds Zag
For decades, the classic 60/40 portfolio worked because bonds acted like a shock absorber. When stocks fell, interest rates usually dropped, bond prices rose, and the portfolio stayed balanced. It wasn’t magic—it was simply the math of falling yields boosting bond values.
The Break in the System
That relationship cracked when interest rates hit rock‑bottom levels. Once yields were near zero, bonds had very little room to rise. Investors were holding an asset class that couldn’t provide much income and couldn’t rally meaningfully during market stress. The safety net got thin.
Then came inflation. Rising prices forced central banks to hike rates aggressively. When rates rise, existing bonds lose value. So instead of cushioning portfolios, bonds fell alongside stocks. The very thing investors relied on for stability became another source of volatility.
The Real Lesson
The takeaway isn’t “bonds are dead.” It’s that the environment matters. Bonds behave differently when:
Inflation is rising
Rates are climbing from low levels
Starting yields are too small to absorb shocks
In other words, bonds didn’t “stop working”—they just stopped working the way they used to.
What This Means Going Forward
Higher yields today actually reset the playing field. Bonds can once again generate income and potentially act as a buffer, but the path depends heavily on inflation trends and rate policy. Investors need to understand the regime they’re in, not rely on the assumptions of the past 40 years.
The Asset Class of Patience
The Quiet Corner of Buffett’s Portfolio
When people think “Warren Buffett,” they picture Coca‑Cola, Apple, railroads, insurance empires. What they don’t picture is the surprisingly large chunk of his portfolio sitting in the most boring asset class imaginable: short‑term U.S. Treasury bills.
Canadian investors have an equivalent tool, but most don’t use it with the same intentionality. In Canada, the closest parallels are:
T‑Bills issued by the Government of Canada
High‑interest savings ETFs (HISAs)
Money market funds
Short‑term government bond ETFs
Buffett treats T‑bills like oxygen. They don’t make headlines, but they keep everything else alive. Berkshire often holds tens of billions in these ultra‑safe instruments—not because they’re exciting, but because they give him flexibility when the world gets messy.
Why He Loves Them
Buffett’s logic is simple:
Safety first — T‑bills are backed by the government. He’s not trying to squeeze out an extra percent; he’s trying to guarantee liquidity. You can move quickly when markets drop or opportunities appear.
Dry powder — When markets panic, cash becomes a superpower. Buffett wants to be the buyer when everyone else is forced to sell.
Predictability — T‑bills don’t surprise you. They don’t crash. They don’t require a 40‑page research memo. They just sit there and earn a modest yield.
It’s the opposite of what most investors do. Many chase returns first and think about safety later. Buffett flips that order.
The Lesson for Regular Investors
You don’t need Buffett’s billions to understand the principle:
Cash‑like assets aren’t a drag—they’re strategic.
They give you:
Room to think
Room to wait
Room to act when opportunity finally shows up
In a world where everyone wants to be fully invested at all times, Buffett quietly reminds us that sometimes the smartest move is simply holding something safe until the right pitch comes along.
Past Editions
Includes: 1) Chuck Akre Framework , 2) Current vs. Capital Account, and 3) 13F Filings.
Includes: 1) DIY Investing: Is It Right for You?, 2) Margin of Safety, and 3) Value of Currency.
Includes: 1) Real Interest Rates, 2) Stagflation, and 3) Mindset of a Long-Term Investor.
Includes: 1) Yield Curve Steepener, 2) Stock Checklist - Part 2, and 3) Recurring Revenues.
Includes: 1) Buy-Hold Strategy, 2) REITs - FFO and AFFO, and 3) Stan Druckenmiller’s Investing Approach.
