Friday, 10 February 2012

Be willing to hold cash reserves when no bargains are available

Absolute-performance-oriented investors, by contrast, are willing to hold cash reserves when no bargains are available.

Cash is liquid and provides a modest, sometimes attractive nominal return, usually above the rate of inflation.

The liquidity of cash affords flexibility, for it can quickly be channelled into other investment outlets with minimal transaction costs. 

Finally, unlike any other holding, cash does not involve any risk of incurring opportunity cost (losses from the inability to take advantage of future bargains) since it does not drop in value during market declines

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