Why I Am Never Fully Invested

Welcome to Guest Post Week here at TRB.  The Stock Rabbi famously blessed the September 2010 breakout and pronounced it ‘Kosher’ as the S&P 500 took out the 50-day moving average to the upside.  He is currently leading a congregation in the Northeast and working on a startup called Kvetchr, the Twitter for Complaining.  His work can be usually be found in the Mixtape section.  Here’s the Rabbi explaining why he always has some cash on the sidelines. – JB


“Always Keep Some Cash in Hand”
– Talmud, Bava Metzia

I am never fully invested.

There are reasons for this relating to risk management but this is not why I am sitting in for Joshy this morning and writing this post.

No, today’s post is about opportunity and the absolute, no exceptions, rule I have, that has served me well, to be ready with ammunition when opportunity arises.

I never have to raise cash when the trade is ripe because I am never fully invested.  Ever.  I always have a bissela cash dedicated to new opportunities.  Usually, this is 20% of my portfolio but sometimes it is more.

And what do I do when the opportunity strikes and I have dedicated the reserved portion?  I raise cash.  This strategy might not be for everyone, I understand, but it has served me exceptionally well and so I am sharing it.

It has removed half of my decision making process when decision making can be vulnerable – in the heat of the moment, deciding what I must sell while the game is afoot.  Instead, I can delay deciding what and how much to sell until after I’ve taken the new position and avoid even a moment on margin.

I have portions of the cash earmarked for specific opportunities that may arise tomorrow or 3 years from now and sometimes the pitch I am waiting for never comes but I don’t care.  The time frame is not so important to me.  Really, it is setting the risk structure for patience.

Let me provide one new example.  I have recently portioned 8% of my portfolio to buy government bonds after they get crushed and yields have risen substantially. I have no idea if this will happen at all much less when but I do believe that sometime in the next few years rates are going to increase substantially.

At that time, I will be able to layer into positions incrementally with cash I have already apportioned.`

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