08-18-2015, 11:40 AM
It sounds to me that "nobody knows what is going to happen" is a stronger argument for holding a moderate cash position or other hedge aimed toward the downside protection than it is for being 100% invested. Being 75% in for example is not like being out, running for the hills so to speak. At some point it makes sense to let cash accumulate, in order to be able to take better opportunity of the drop should it come. It is not like there is going to be some huge lost opportunity cost, as in the market all of a sudden blows through the top and taking a massive run. And even if that were to happen, there is the 75% or 85% or whatever long position that takes the portfolio for the ride.
I just don't usually view positions as all in or all out. Everything has a typical weighting range. With REITs for example, in boom times my portfolio may have 20% weighting, but in the face of major headwinds, may be only 5% weighting. I generally wouldn't totally exit the sector, as you say, nobody really knows what will happen. But one can let weightings float depending upon the signals that the economy and the market are giving. In the strongest part of this bull market, I was usually close to 100% invested the entire time. Now the signals said that raising some cash would be prudent, and so the cash weighting has moved to the upper end based upon those signals and also on my sentiment.
I just don't usually view positions as all in or all out. Everything has a typical weighting range. With REITs for example, in boom times my portfolio may have 20% weighting, but in the face of major headwinds, may be only 5% weighting. I generally wouldn't totally exit the sector, as you say, nobody really knows what will happen. But one can let weightings float depending upon the signals that the economy and the market are giving. In the strongest part of this bull market, I was usually close to 100% invested the entire time. Now the signals said that raising some cash would be prudent, and so the cash weighting has moved to the upper end based upon those signals and also on my sentiment.
Alex