Why It’s A Mistake To Be Raising Cash In This Market

Introduction

It appears that I have become caught up in a spirited discussion regarding holding cash in investment portfolios. However, I believe that my position on this important subject is being misrepresented. Therefore, I felt compelled to offer this article for clarification of my true position and beliefs on the utilization of cash in portfolios.

My inspiration was a recent article published by Adam Aloisi titled “Should the Retired Dividend Growth Investor Really Be Building Cash?”

In his article Adam provided a link to a recent article published by Regarded Solutions titled “Retirement Strategy: Having Cash Is Not a Sin, It Is Smart!”

And he provided a link to a previous article of mine I authored on December 12, 2013 titled “Why It’s a Mistake to Hold Cash in This Market” and finally a link to a previous article he authored on December 13, 2013 which he considered a counterpoint to my article which he titled “Why Holding Cash May Not Be a Bad Idea in Today’s Market.”

At this point, and before I go on, I want to be clear that I have a great deal of respect for Adam and his work, even though we don’t always agree on investing matters. Furthermore, I also have a great deal of respect for Regarded Solutions and his work. However, this rebuttal and continuing debate is between Adam and I, as Regarded Solutions is, in a matter of speaking, an innocent bystander.

In both of Adam’s articles, it is my position that he unintentionally misrepresented my views on cash and investment portfolios. I wrote a long retort in the comment stream of his first “counterpoint” article and any interested reader can find it there. Adam also provided rebuttal comments to my rebuttal comment that you can also read, if you choose.

The Difference between Going to Cash, Cash Reserves and Building Cash

Going to Cash: I Consider It a Mistake to Liquidate Stocks Based on Fear

My first article that Adam rebutted, or to use his words “themed as a counterpoint” was, in my opinion, neither. My article was addressing liquidating all or a portion of an equity portfolio for fear of a market crash. We had just completed the fifth year of a strong bull market and there was already a pervasively strong sentiment for an imminent market crash. My main point underpinning my article was that I considered it a mistake to move to cash in order to avoid a market crash just because the market had gone up for an extended period of time. My position was that “time in the market” is more valuable than attempting to “time the market.”

Furthermore, my article was about investing in great businesses at sound valuations regardless of market levels. Moreover, I was specifically addressing the capital portion of an investor’s portfolio that was dedicated to equities. Additionally, I wrote about the difference between investing and speculating.  And, I also pointed out that it is a market of stocks and not a stock market. Therefore, my contention was that regardless of market levels, there are always attractively valued stocks that can be found. I concluded the article with the following paragraph:

“For all the reasons stated above, and others, I believe it is always a mistake for true investors to hold cash based on an expectation of what the stock market might do in the near-term future. Instead, I recommend building portfolios whether it is for growth and income, income or growth alone, one company at a time. Study and analyze the businesses you are interested in and make your long-term investing decisions on those merits. You don’t have to buy at perfect bottoms, and you don’t have to sell at perfect tops, in truth, that cannot be accomplished except by chance. Identifying great businesses at sound valuations is not only all you can hope to accomplish, it is something that you can accomplish with a little work, effort and intelligent thought. Invest wisely.”