3 reasons investors should hold cash

It's easier to seize opportunities if you have some spare cash.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

As the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) approaches 5,000 points once again, having climbed 49% since the bottom of the Global Financial Crisis in May 2009, investors could do worse than heed the advice of some of the world's greatest investors.

Bill Miller

Bill Miller who was a star portfolio manager at US-based Legg Mason (NYSE: LM) for many years once said:

"Great investors and not unemotional, but are inversely emotional – they get worried when the market is up and feel good when everyone is worried."

Miller's advice seems timely as we head in to the August reporting season. At the moment the stock market seems to "feel good" but with low expectations for earnings growth perhaps it would be more prudent for investors to "get worried".

Howard Marks

Howard Marks is Chairman and Co-Founder of Oaktree Capital (NYSE: OAK) which has recently been in the news in relation to Billabong International (ASX: BBG). Marks is known to love a bargain; he also suggests that there are times when investors should be more cautious in their enthusiasm to invest:

"If you buy a cheap stock when the market is high, it is a challenge because, if the market being high is followed by a general decline in prices, then for you to make money in your cheap stock, you have to swim against the tide. If you buy when the market is low, and that lowness is going to be corrected by a general inflation, and you buy your cheap stock, then you have the tailwind in your favor…. I think it is unrealistic and maybe hubristic to say, 'I don't care about what is going on in the world. I know a cheap stock when I see one.' If you don't follow the pendulum and understand the cycle, then that implies that you always invest as much money as aggressively. That doesn't make any sense to me. I have been around too long to think that a good investment is always equally good all the time regardless of the climate."

Warren Buffett

The chairman of Berkshire Hathaway (NYSE: BRK.A) offers this advice, which is particularly relevant given how many companies look fully valued at present.

"Investors making purchases in an overheated market need to recognise that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid."

Foolish takeaway

Today with the market near 5,000, there are fewer enticing opportunities than there were a year ago when the index was closer to 4,000. There are of course opportunities should the market pull back during reporting season — then investors who have cash available will be better positioned to seize opportunities which spring up.

Interested in our #1 dividend-paying stock? Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

More reading


Motley Fool contributor Tim McArthur owns a share in Billabong International.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »