I read yesterday’s Straits Times article ‘The best investors sit on plenty of cash’ with interest.
What are the roles of cash in your investment holdings?
Intuitively, cash gives you options during extreme market conditions. It means one can buy at depressed market price to average down, to build a position in a promising counter. In essence cash presents opportunity to reduce your losses, or increase your earnings when market recovers.
Cash also serves as an anchor to your portfolio as its value is constant. It is a valuable tool from a trade execution stand point as described above. It also helps cushion the fall in portfolio value from a psychological stand point, reducing anxiety in investors and prevent hasty and erroneous decision making.
However, to make full use of cash during market downturn, one needs to have the capability of identifying the approximate low price point of …