02-20-2014, 10:14 AM
(02-20-2014, 09:08 AM)hendi_alex Wrote: Buying a stock that is making new highs is one thing, buying at general highs when the market is getting long in the tooth, may be something entirely different. Could be fodder for the buy high, sell low crowd! I still think that a decent allocation of patient cash is an underrated asset. How many years will it take today's dividend investor to buy and get anywhere close to the return that was gotten by patient cash that bought shares of favorite issues in the winter thru early spring of 2009? I was caught fully deployed then, and vowed to almost always keep a supply of opportunity cash on hand.
I feel the same way, even though I'm not sure the math supports it. It may be that staying fully invested, which ensures you don't miss any up days and that you earn maximum dividends (which are reinvested), beats having dry powder to deploy when there is a correction. It just depends on how imminent and how deep the correction is. If the correction is near, and deep, then you can come out ahead holding cash. If the correction is far off and shallow, you can come out behind holding cash.
But math isn't the end of the story, and if your crystal ball is cloudy, there is plenty of psychological comfort -- for me, anyway -- in having some cash around. It smooths out your exposure to market volatility, keeps you prepared for a rainy day, and gives you a great tool to work with when the correction does come.