Post edited 9:11 am – March 11, 2010 by rupneu1
I think as your amounte invested gets larger, you want to have some decent percentage in cash all the time. When you are investing few thousands, it doesn't matter because if you have more buying opportunities, you can deposit more from your savings or paycheck and buy more stocks. But once you start to have a significant position in stocks, then you need to be disciplined and always have at least 10-20% in cash…so when the market goes down, you have cash to buy more instead of panic selling. I currently am 20% in cash. And after a while, you'll get used to looking at portfolio return as a whole, including cash. In a bull market, sure cash may not give you a high return as stock, but when the market goes down, your cash gives you a great buffer..you'll beat the market AND will have cash handy to buy more value stock, which will beat the market even more. As a value investor, it is hard to find opportunity in a bull market, and as a result hard to be disciplined. Somehow, people get an urge to keep buying, even at irrational prices (may be because of the the animal spirit that Keynes talk about in the General Theory). But the key to success is being patience and disciplined and always have cash.
As you may have read or heard, before the current recession started, Buffett's Berkshire had 35billion in cash…which gave him an opportunity to buy more companies when everyone else was selling and staying away from market in 2008/2009. Even after all that 20 billion in cash..imagine that. and still beats the market. That is beating the market with less risk than the market.
So in summary, once your portfolio gets bigger, then you'll automatically start to have more % in cash..and if you don't, you should be disciplined and should have more cash!
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