Why strategic cash positioning works for you
Rather than rushing into the market, we use cash as a tactical tool to protect your portfolio and capitalize on opportunities. Here’s how patience and discipline drive superior long-term performance.
At Thornwood Financial, we take a tactical approach when investing in individual equities.
By using this approach, we can capitalize on timely opportunities that emerge throughout the various phases of the investment cycle. When (and how!) you buy a stock are major determining factors in achieving a long-term positive return. Waiting for the right opportunity requires vigilance and patience.
Because the market isn’t always ideally positioned, deploying capital—especially in new accounts—takes time and discipline.
Rather than rushing into the market, we prioritize patience and selectivity, recognizing that it may take 6 to 18 months to fully invest a new account. But waiting for the right opportunity is far more prudent than putting all the money to work at the wrong time–it can mean the difference between a loss and a gain over a 3-to-5-year period.
Four key elements to our investment strategy (and how cash plays a critical role)
1. Patience and Timing
Opportunities come infrequently, but when they do, you must act quickly. Cash ensures we’re ready to invest when the market is ripe.
2. Risk Management
Having an actionable amount of cash on hand allows us to maintain a safety net and avoid over-leveraging a portfolio.
3. Long-term Focus
We invest with a long-term mindset, focusing on 3–5 year gains rather than short-term market moves. We don’t time the market or trade frequently. Instead, we buy quality companies with strong fundamentals and hold them. Part of that long-term view means managing cash positions—increasing cash in volatile times to both protect the portfolio from losses and take advantage of lower stock prices.
4. Value Investing
We look for undervalued companies with strong business models and competitive advantages. By carrying cash, we can quickly invest in these companies when they become available at attractive prices.
Again, outstanding portfolio performance comes from taking advantage of opportunities in individual equities. These opportunities can appear sporadically, often in the form of an overreaction to some macro or micro event. Macro events, such as Covid and tariff fears, can drive down prices, allowing you to purchase good stock at great prices. Micro events, like a slight miss on an earnings report, can drive down individual equities outside of the macro environment, presenting buying opportunities.
Patience remains central to Thornwood’s tactical management approach. While full portfolio deployment can take 12 to 18 months, we always maintain a cash position—typically 10% in favorable markets and up to 35–50% in periods of volatility. This reserve allows us to respond swiftly to unexpected opportunities without disrupting the overall strategy. Over time, selectively acquiring individual equities at opportune moments has proven more effective for enhancing returns than a static, index-based approach.
Bottom line: Cash will always play a role in your portfolio, so you can take advantage of every good opportunity.
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