Grey Owl Capital on the Role of Cash in a Portfolio

Jeff Erber and Grey Owl Capital are out with their fourth quarter letter to investors.  In it, they highlight how they started to move more cash into equities in Q4 and have continued to do so in 2013.  This led to an interesting discussion about how they view cash as a component of their portfolio which we wanted to draw attention to. Cash as a 'Hedge' Grey Owl outlines the tradeoffs between holding cash and being invested: "We have chosen to 'hedge' our exposure to these individual equities by holding cash.  If the broad equity market was overvalued and the economy was on artificial support, we wanted the cash available in order to take advantage of likely dislocations.  Today, our analysis says that the value of holding this cash is lower than in the past few years." While they use the term 'hedge,' what they really mean is that they view cash as an oppor...