Could the best trade of the year be the one you never made? It sounds like laziness, but it is the most counterintuitive rule in one discipline: learn to sit in cash. Most people reject the idea outright: money that doesn’t compound is money lost, and cash is a missed rally. Holding cash in a bull market feels worse than being trapped at a loss.
So straighten the concept first. Cash is not leaving the market; it is one of the positions a portfolio can hold. A position can be full, half, or zero — and zero is not absence, it is an actively chosen place to stand. One system lists it explicitly in its section on temperament, next to another rule: don’t go where the crowds go. Learn to sit in cash. Refuse to copy other people’s homework. Keep learning for life. Put those four in a row and the weight is clear: sitting out is not the absence of action — it is an action.
Two Periods of Leave
This is what that discipline looks like in practice: in the second half of 2021, pull back and watch; in the first half of 2023, take leave and cut the position. Twice, the same move — cut exposure, step outside the arena.
No further detail can be given here, and none is needed. The point is not how much was sold; it is that stopping was possible at all. The fully invested investor’s deepest fear is not the drawdown — it is standing still. A drawdown can be rationalized as long-term conviction; standing still forces a harder question: with no position in hand, what do I still have? Most people cannot answer it, so they would rather ride a full portfolio through anything than sit flat. That leave could be taken at all says the practitioner could sever his dependence on the market — and that, not any market call, is what those two periods of leave were worth.
The Opportunity-Cost Objection
The counterargument now takes the floor, and it arrives strong: “Don’t play what you can’t read” is easy to say. By the time you understand, the price has already moved; the investor in cash is doomed to buy back at the top. As for cutting positions and taking leave — if a bull market follows, it was simply wrong, in plain sight. Opportunity cost stands right there, cash depreciates every day, and not playing is losing.
This is the strongest version of the objection, and it deserves a serious answer. The answer does not deny opportunity cost; it changes the accounting category. Cash buys not return but optionality. Money outside the arena cannot commit an error; money inside pays for its errors at full position size. What does staying out buy? Not outperformance — the fact of not having participated in the decline. In a bull market that fact is worth nothing; in a bear market it is the entire principal. Optionality is worthless in calm times and priceless at the hinge moment — and that is what sits in a cash holder’s account.
In other words, the opportunity-cost argument counts the gains that are visible and never counts the errors that are visible too. The two ledgers are kept separately; which one you live by depends on which you fear more — missing out, or losing what you have.
Copying Homework and the Circle of Competence
The opposition has one last card: if you refuse to copy homework, aren’t you losing money every time someone else’s trade pays off?
It looks sharp, but it cuts its own hand. A borrowed position cannot be held, because the logic belongs to someone else — the moment it drops ten percent, you cut; the moment it rises a little, you run. The result is an iron law: the gains belong to someone else, the losses to you. The boundary of the circle of competence is in your head, not out in the market. An asset you cannot understand is a position you cannot hold, and a position you cannot hold has an expected return of zero. Refusing to copy homework is not pride. It is honesty toward your own account.
So the loop closes where it began: not playing is also a form of playing. Break the compulsion to be always in, and the decisions that remain finally deserve the name. A full position is a judgment; so is an empty one — only harder, because it demands that a person keep his own patch of empty ground amid everyone else’s noise.
