Aggressive When Opportunities Are Scarce

By Hein waschefort (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

Sleep per Day: (Target) 7h30m / day (Actual) 7h26m / day (86 day average)

Since abandoning a market timing strategy based on Shiller P/E, I’ve been pondering about the question of how to determine how much cash to hold.

I mentioned in “If Wide Moat Div Yield + Growth > Discount Rate, Forget Market Timing” that if there’s any wide moat stocks who’s div yield + discounted growth rate is bigger than a conservative discount rate, you should pull a trigger as a large margin of safety is present.

But the danger of being fully invested when it’s not a bear market is that the lack of cash when a bear market hits means that I would miss out on once in a lifetime bargains.

The solution? I decide to be aggressive when opportunities are scarce, and passive when opportunities are ample.

How do I determine if opportunities are scarce or ample? It is determined by the amount of cash I have versus the number of opportunities.

Considering I’m willing to pay max 1.5% stock commission for every stock purchase, this helps define how many stock purchases I can make under this rule.

So when the number of stock purchases I can make is less than the opportunities, then I will only make one purchase / month to minimize missing out on better bargains due to being fully invested. When the number of stock purchases I can make is more than the opportunities, then I will be very aggressive since I would still have cash left over to scoop up on better bargains.

[Disclaimer]

Not advice. No offer. Do not rely. May lose value. Risky. Conflicts hidden/obscured. (Borrowed from Terrence Yang‘s Disclaimer on Quora)

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