The general belief is that holding cash in one’s portfolio is a waste as it earns nothing these days. We disagree with this, and we disagree strongly. If we are unable to find enough securities to be 100% invested, we will hold cash. Typically we hold cash equivalents whereby we own securities with little downside and some upside. Holding cash allows us to move quickly when we see opportunities.
These opportunities may be increasing our current positions or adding new positions. If we didn’t have the cash on hand, we would need to sell something else. The most likely scenario is that we would be selling something else at a price that is below its intrinsic value and therefore we would be making an irrational economic decision. We do everything in our power to avoid making these types of foolish decisions.
Additionally, holding cash allows one to sleep better at night knowing that if the market takes a big leg down, we have the cash on hand to take advantage. That being said, if we find enough securities at attractive prices we will be fully invested, regardless of where the market as a whole is trading.