The Importance of Cash

For me, one of the hardest thing to do in investing is to retain a respectable pile of cashola. It is very easy to rationalize:

• that the market will keep going up
• a dividend stock pays better dividends than holding cash
• that your stock picks are defensive
• that you will raise cash before the market REALLY drops

But I am trying to be disciplined in my portfolio. If you think about great investors, like Warren Buffet and Seth Klarman - you realize that they keep a lot of cash so to be able to take advantage of opportunities, whenever they may occur.

So I am sitting about 25% in cash. Does this mean I am rooting for a "correction"? I am sure that if the market were to drop 10 to 20% I would dislike it as much as the next guy. That is just the psychology of investors and is frankly why investors struggle. But if you are a net buyer, rather than a seller and if eventually prices go back up, I expect a drop is an opportunity rather than a disaster. That is equally true for me dividend reinvestment plans... it is obviously better to get more shares.

Now all of this is true only if nothing else changes. If we're in a recession, if dividends get cut or there is a war, then we are not necessarily better off with the lower prices.

I did buy a new stock yesterday (note I was a net seller as I closed my position in CJES and cut my RIMM position 50% earlier in the week). I bought SAI, which is a regular on the MFI lists at $13.50. They announced a 12 cent quarterly dividend, which works out to about 3.6% and gave pretty solid guidance for the upcoming year.