Many investors feel they should be fully invested when it comes to their stock market account.  They feel they should have all of their cash working for them.

And hey, I get this.  It has a very rational sound to it.

But it just isn’t necessarily so.  Indeed, it’s probably a rookie error to do so.

You might not be surprised to learn that the legendary Warren Buffet has a much different view of cash and investing.  He thinks of a cash balance in his investment account in a much more positive light.

I recently read that he thinks of cash as the ultimate call option.  This is positively brilliant.

Let me explain.

A call option gives you the right to buy a stock at a certain price by a certain date.  So if the stock goes up a great deal, you have the option to buy it at the agreed on lower price.  In other words, you get to buy it at a discount.

Your buying price is a huge factor in your success as a stock investor.  Successful investors buy low.  Unsuccessful investors buy too high.

So what does cash have to do with call options?

Well, as I said, Warren thinks of cash as the ultimate call option, so he keeps plenty of it on hand.

Why does he think it’s the ultimate call option?  Because with cash, he can buy ANY stock at ANY time when the price goes really low.

That’s a lot better than having the right to buy just one stock for a limited amount of time at a potentially lower than market price.

I’ll expand on another reason why this is brilliant in the next post.  It involves loss of money due to time decay in options.  And again, Warren has that loss at a minimum.

No surprise there, really.

But I’m getting ahead of myself.  For now, start thinking about your attitude toward keeping a good supply of cash in your stock account.

Because it’s the ultimate call option and will put you in a position to buy stocks at some future time at an incredible bargain.

Just like Warren does.

To your health and prosperity – John