A dilemma every investor face : To remain invested in market or be fearful and cash out.
NO doubt, abundance of cash will allow you lot more investment flexibility than other people in market, more so in such volatile times or bloodbath in share market. But for that, you have to pass so many good looking (but not good) opportunities when markets are going up to preserve your cash.
On the other hand, if you are fully cash out in times of fear, you will miss the amazing wealth creation journey as shown below
So these two tweets shows exactly the dilemma one faces. As John Keynes quoted long time back –“Markets can remain irrational longer than you can remain solvent“
So the key here is to have correct portfolio allocation.
You should know which opportunities to let pass by. That can only happen when you don’t work on tips but study the business (ok, i mean share) in which you are going to invest.
If you can’t understand Balance sheet or cash flows, no problem.
As long as its not a penny stock chosen by you, you can just start with a basic google search about management integrity or business viability as a macro picture and things will start to appear. Take help to understand bigger picture of business. Understand the parameters for different kind of business. Is it cash guzzler or work on leverage? Is it a high margin business or high volume business?
So if your basic search, sanity checks on company itself shows you own a dud investment, be fearful and cash out. Deploy that cash to buy quality stocks further. Not only it will avoid to push more cash from your pocket but also trim your future losses.
So the cash you generally deploy for below par investments can be saved by doing some basic sanity checks on a company and that cash can be really useful in bloodbath in share market. You will get good companies at prices which will be seen as missed opportunity by people who don’t have cash.
Before i leave you to ponder on further details about the companies, do remember
A great company may not be a great investment!!
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