Cutting Edge Insights
with Dr. Lee

Is it Time to Take Some Chips off the Table?

I don’t like playing cards.

It is likely that many of our readers do.

If you are a card player, good for you.  Do what you enjoy, and don’t let me or anyone else tell you differently.

But I’ll never like playing cards. To hell with the “social” aspect of it. If we want to have social dialogue, we can get together over iced tea, beer, or a zoom meeting and have good conversation and dialogue.

According to Irving Crespi in 1956, cards were played in 87% of American households and 83% of American families regularly played cards.

I can’t help but think that the numbers must be lower today, given casinos, online gambling, the relative paucity of family time around the dinner table, etc.

I think most would agree that the phrase “take some chips off the table” originated from the game of poker, in which chips are a surrogate for money.  (Incidentally, if any of our readers happens to know the true origin of the phrase, please enlighten us using the comment link below.)

Sardonically, it is illegal in most versions of poker to “take some chips off the table” in the sense of cashing in on some of your chips – unless you are cashing out of the game completely.

It is fairly universally accepted that “taking some chips off the table” is a colloquialism for converting other holdings to cash – whether “other holdings” pertains to the equities market, real estate, poker, or equity held in a business.

I submit to you the following question:

Has the aforementioned colloquialism become so entrenched in our lexicon that we are missing potential deeper meanings?

In what other areas might it have meaning?

Hmmmm.  Presently, the U.S. equities market is trading at all-time highs with respect to P/E ratios…cryptocurrencies are gaining traction (while showing their volatility as a veritable fake asset)…home prices are soaring…and the rate of savings in the United States is at an all-time high.

Could “Taking some chips off the table” pertain to reallocating some cash to other investments? 

Indeed, cash is a wasting asset pursuant to inflation (I’ve written about it many times; see our archives for more information).  Even Donald Trump (love him or hate him politically – that’s irrelevant here) has been known to say “It’s always nice to have some dry powder” – meaning cash ready to deploy toward the next real estate deal.  But if you have too much cash sitting around, you remain overly exposed to inflation.

Could “Taking some chips off the table” pertain to refinancing an equity-rich investment property (I’m talking real property here) and allowing the proceeds to serve as a down payment in the acquisition of one or more additional real property purchases? 

Absolutely yes – this is a way to use leverage to its fullest (see our previous article on the power of leverage here) – but the limiting factor is the cash flow that remains from each investment.  In other words, never refinance your way into a poor cash flow situation.

Well, what are “chips”?  And what is “the table”?

I would propose that “chips” are assets with limited liquidity.  If you are accumulating
“chips”, convert them while you can, because the economy may change and there may not be another opportunity.

And “taking them off the table” is another way of saying “make something no longer available”, as in “get it, do it, convert it while you can.”

Not too long ago, an investor wanted to place a modest amount of money into one of our projects.  As it turned out, he was heavily invested in one market sector and when a correction occurred, he found that he no longer had the liquidity to allocate toward an income-producing real estate project.

Is there a lesson here?  I would suggest an old saying involving eggs and baskets.  Or, having the insight to know when one is “speculating” rather than “investing.”

You never know when 

  1. Your beloved crypto may tank because some stuffed shirt tweeted a tweet
  2. Your beloved crypto may tank because it is a fake asset to begin with
  3. The real estate market may experience a correction and you’re no longer able to refinance
  4. The real estate market may experience a surge and you’re no longer able to make the purchase you’ve been contemplating
  5. The equities market may move against your holdings
  6. Your primary earning ability may suffer due to your health, the industry, or due to other circumstances beyond your control

As you think about that, always consider how you’ve allocated your proverbial “chips.”  Revisit this regularly and reallocate when appropriate.

And remember, I give ideas, not advice.

Until next time,

Dr. Lee Newton

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