This past Christmas, my wife gave me a copy of The Tao of Warren Buffett. The book is a collection of Warren Buffet’s aphorisms organized by themes, and one section in particular resonated with me. It describes how Buffett behaves when markets are strong and high-quality businesses trade at significant premiums. Rather than lowering his standards or forcing activity, he simply stops buying and lets cash accumulate.
That is exactly what’s happening in my portfolio right now.
A Natural Build, Not a Market Call
Let me begin by saying that I am not calling a market top nor am I selling positions. I remain heavily exposed to the core equities in my portfolio and the long-term compounding power they represent.
However, as the market has pushed higher, my cash position has undergone what Buffett would call a natural build. Valuations at both the market level and for individual stocks I follow look stretched. I am finding fewer and fewer high-conviction opportunities to deploy new capital. New income is, for the most part, going into short-term Treasuries where it earns a return while I wait for better opportunities.
If you spend too much time listening to market commentary, a growing cash balance generally has a negative stigma associated, especially as equities move higher. An investor is perceived as scared. It can also be viewed as timing the market or making a negative forecast. I would argue the opposite. It is a byproduct of valuation discipline. If you adhere to a strict price-to-value framework, there are inevitable market cycles where the only rational move is to wait.
I am reminding myself daily not to confuse a great company with a great price.
Cash as a Strategic Asset
The Tao of Warren Buffett points out a behavioral inversion that most investors struggle with. Most market participants cling to cash out of fear after the market crashes. Buffett, conversely, hoards it while the market is booming so that he is ready when the cycle eventually turns.
Charlie Munger put it more bluntly, “The way to get rich is to keep $10 million in your checking account in case a good deal comes along.”
While the scale of that advice may differ, the principle holds. Liquidity is a prerequisite for decisiveness. I view cash as a strategic asset rather than a drag on performance. Seth Klarman famously described cash as a perpetual option which captures it perfectly. It costs almost little to hold cash in a high rate environment, but it provides the ammunition to capitalize on opportunities when the market dislocates.
The thing is, watching the S&P 500 climb while cash sits idle can be uncomfortable. The fear-of-missing-out can be a powerful emotion, urging for participation in the rally. But I would rather sit with that discomfort than overpay for quality just to feel active.
Idiosyncratic vs. Systemic Opportunity
Those waiting in cash are also often characterized as waiting for the world to fall apart. While I am prepared for a “baby with the bathwater” systemic correction, my primary focus remains on idiosyncratic opportunities. These are moments where a specific business is temporarily mispriced due to a headline or technical factor rather than a market-wide panic.
We have seen a few of these recently.
For example, toward the end of 2025 S&P Global (SPGI) and Moody’s (MCO) offered rare discounts after fears of a slow down in debt issuance. Those were relatively fat pitches—a chance to buy wonderful businesses at a price that materially improved my expected returns.
More recently, Visa (V) and Mastercard (MA) pulled back following headlines about potential interest rate caps. While these are not in screaming bargain territory yet, the reduction in valuation froth makes the names significantly more interesting from a risk-reward perspective.
But this is why cash is so important. When you buy a stock, you are locking in your future return based on the price you pay today. An 8% earnings yield is fundamentally better than a 3% earnings yield for the same company because price determines returns. Cash provides the option to wait for moments when the math is more favorable.
Final Thoughts
The goal of hoarding cash is not to hoard it forever. It’s to spend it when the market offers you something worth buying at a price that makes sense.
Eventually, market sentiment will shift. The market will feel scary. Screens will turn red. Hopelessness will set in. It will feel like the selling will never end. Those are the moments when fortunes are made.
But without cash, or worse, if you are already all-in at prices that didn’t make sense, you become a victim instead of an opportunist.
The entire game is inverting the natural human tendency to buy high and sell low. Cash is how you do it.
I am naturally preparing for opportunity, not by selling, but by refusing to buy when it does not make sense.
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