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b'With Mohamed El-Erian, Bloomberg View columnist, Chief Economic Advisor at Allianz, and Chairman of President Obama\'s Global Development Council
Continuing with our new series called \\u201cThe Great Investors, What\'s in their Wallet?\\u201d\\xa0 The Steve Pomeranz Show has invited Mohamed El-Erian, truly one of the world\\u2019s greatest investors, to speak about his personal investing practices.
Mohamed is a Bloomberg View columnist, Chief Economic Advisor at Allianz, and Chairman of President Obama\'s Global Development Council.\\xa0 In previous interviews, we discussed his latest book, The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse, and he helped us understand and get some needed perspective on the implications of the Brexit referendum, when that was a big issue a few months ago.
A Peek Inside Mohamed\\u2019s \\u201cWallet\\u201d
It may be surprising to learn that about 30% of Mohamed\\u2019s portfolio is in cash at the moment, which Mohamed acknowledges doesn\\u2019t pay him anything at all.\\xa0 He states, in fact, that inflation actually eats away the real purchasing power of that cash. So how does he explain his present position?
\\u201cWe have been living through a very unusual period in which financial assets have been decoupled from fundamentals and for good reason.\\xa0 Central banks have tried to use the financial markets as a way of promoting growth, by pushing up artificially asset prices, making people feel richer, and triggering the wealth effect, so they\'d go out and spend more.\\xa0 Unfortunately, it hasn\'t worked.\\u201d
The Investor\\u2019s Defense
With central banks becoming less effective, the smart investor responds with resilience, in case prices do go down, and with agility to take advantage of overshoots. In that vein, Mohamed says he has reduced his holdings of public equities and public bonds and moved those mostly into cash, and, in addition, has invested more actively in venture capital.
Dealing With Artificially Low-Interest Rates
In spite of the fact that stock prices are high relative to other risky investments, stocks are still an attractive option, and the equity market, says Mohamed, \\u201cis the only place you can get any returns or expect to get any returns.\\u201d\\xa0 In order to keep the economy moving forward, the Fed has created artificially low-interest rates, which, in turn, has produced an over-priced market. At some point, prices will go down and having cash on hand enables an investor to buy at more attractive prices when that does occur.
The Illuminating Tale of the Dog and The Cat
To illustrate the concept of buying in an artificially priced market, Mohamed uses the example of the dog and the cat. There\'s a cat that you can buy at $30,000, but there\'s a dog that you can buy at $10,000. How would you choose? You might say, "I\'d rather buy a dog at $10,000." But, says Mohamed, \\u201cthat doesn\'t make it a good thing to do.\\xa0 It may be cheaper in relative terms, but in absolute terms it\'s expensive.\\u201d And not a smart investment.
Choosing Your Mistakes as an Investor
Considering the many unknowns in the marketplace, it\\u2019s not possible to cover all bases when deciding where and how to invest, and the choice of either staying out of the market and waiting it out or going \\u201call-in\\u201d is crucial. So which way do you go? Mohamed says \\u201cit\'s better to recover from a mistake where you\'ve left some money on the table than one in which you\'ve lost quite a bit of money fast.\\u201d
Venturing into the Venture Side

With the stock market having done well this year, Mohamed has offset the 0% earnings on his cash by focusing on venture capital investments. Venture capital investments are early stage, risky investments in which you get an equity stake in the business with the hope that it will give b...'