The Value of Capital Reserves in Any Portfolio

Cash is one of the most sacred resources for an investor to utilize in a portfolio, and any seasoned investor will tell you that cash not deployed can mean opportunities missed. Some of the greatest investors, however, believe that having cash available at all times is one of the best ways to ensure the largest number of opportunities can be assessed at a given time, increasing the breadth of deals said investor is able to look at.

Indeed, having too much dead cash sitting around can be a bad thing (although definitely a good problem to have), and in a market such as today with price levels skyrocketing thanks to relatively accommodative monetary policy and the lack of other better substitutes for securities, investors have been piling into securities at a pace seen only a few other times in history.

With that in mind, it is important to consider that we are now a full 10 years into a bull market, a run that is looking like it will shatter records should the party continue for a few more years. Investors who have traditionally been bearish have turned into bulls (think Prem Watsa), and even the most careful investors are jumping onto some sort of growth bandwagon to avoid missing out on opportunities that may have come and gone over the past few years.

That said, the cautious investors sitting on a pile of cash are likely to be the ones who will be able to cash in, should another 2007/2008 happen soon.