With the World Series right around the corner — and with the stock market coming off its worst month in recent memory —an old Warren Buffett saying is on my mind:
There are no called strikes in investing.
It’s a simple metaphor, yet it’s wildly insightful … and not just while investing.
For the non-baseball fans out there, there are two ways for a batter to get a strike:
- You can swing and miss.
- Or you can fail to swing at a pitch within the strike zone. This is a called strike.
Batters face constant pressure to swing at less-than-ideal pitches to avoid a called strike.
As ridiculous as this sounds, professional investors face the same dynamic. Clients pressure them to “do something,” and they often get goaded into taking unwanted positions. If they bide their time in cash, their clients might fire them.
But individual investors don’t face the same pressure. You’re accountable to no one but yourself, and you can let as many pitches as you want to go zipping by. There will always be more to follow. You never have to make a trade you don’t want to make.
Let’s take a few lessons from this.
It’s OK to Be in Cash
You don’t have to be 100% invested at all times. Cash is a position, and sometimes it’s the best position. There’s nothing wrong with having part — or even all — of your portfolio sitting on the sideline when you don’t love the options in front of you.
Cash is the ultimate option because there’s no time frame. With cash in your account, you reserve the right to buy anything you want at any price and over any time frame as opportunities present themselves.
This doesn’t mean you should sell everything and sit in cash. You may have plenty of fantastic long-term positions that you intend to hold forever. But having at least a little cash in reserve is smart. It’s what allowed Warren Buffett to go on many shopping sprees after major market declines.
Saving and Investing Aren’t the Same Thing
You know me. I’m the “retirement guy.” I’m always nagging you to put more in your 401(k) plan.
Well, even in a cruddy market where stocks are falling, bonds are falling and nothing appears to work, you should still make every effort to stuff as many dollars into your retirement plan as possible.
Even if those dollars just sit in your plan’s money market or stable value fund, you still get the benefit of the tax break and employer matching. Plus, you get that optionality I mentioned a minute ago. The funds are sitting in your account, ready to invest once the right opportunity comes along.
Getting back to the theme of baseball, I’ll be rooting for the Houston Astros this year. My hometown Rangers couldn’t get it done, so I’ll be shifting my allegiance to the other Texas team.
To safe profits,
Co-Editor, Green Zone Fortunes
Charles Sizemore is the co-editor of Green Zone Fortunes and specializes in income and retirement topics. He is also a frequent guest on CNBC, Bloomberg and Fox Business.