"We can rationalise until the cows come home, but ultimately we each have to do what feels comfortable."
That is the essence of it all. It's an individual thing.
One point I would take up with you, however, is the one of compelling investment opportunities being rare.
Firstly, I'm not sure they are that rare, but for the sake of debate I'll accept your proposition that compelling investment opportunities are rare.
But where I draw a line is on any prescription for "compelling" investment opportunities, because "compelling" seems to connote some sort of slam-dunk, no-brainer investment opportunity.
And I don't think that successful investing necessarily involves either:
A. buying only compelling investments ,or else
B. doing nothing.
Because what I am trying to do by assembling a portfolio of shares is to generate an investment return that beats inflation by some reasonable margin that compensates me for the risks I am assuming in that process.
Not every investment I make needs to be a compelling one in order to achieve that objective.
So I am quite happy to wilfully own a certain portion of what I readily concede are not manifestly compelling investments, based on the experience that - in a portfolio sense - out of ten such "non-compelling" investments, five or six of them do very well for me, three or four wash their face, and one causes me harm.
Applying my philosophical approach of Not-Necessarily-Compelling, But-No-Cash to generate my personal investment objective I find to be a lot more sensible (and, counter-intuitively, less risky) than using an Only-Compelling-or-Else-Hold-Cash approach.
For starters, I think that it is difficult to pigeon hole compelling investments as distinct from good investments from investments that look merely reasonable. Often, what I thought looked like a pretty indifferent investment opportunity ended up shooting the lights out for me, and what I thought appeared quite compelling ended up being somewhat ordinary.
Another thing: I actually think the inclination/desire to hold cash at various points in time causes some unintended and unfavourable consequences due to the forces of emotional biases. Our minds can play some strange tricks on us from time to time, especially when it comes to perceiving "where we are in the cycle" [*], as well as rendering us quite oblivious to the seemingly victim-less crime of opportunity cost.
I sense that the notion of holding cash lulls investors into a false sense of security. The reason I believe this is because I have often seen/read about/spoken to investors who went to cash because they were "concerned" about markets at some stage, or felt that the market was "due for a correction", only to at some stage later end up buying back in again at higher levels. Timing the market is a mug's game.
[*] I speak from first-hand experience: the latest example of this being that last year I sold my shares in a certain high-quality furniture retailer (I think you know the one) because I ignored the valuation and instead became concerned about "the cycle". I might ultimately prove to be right in this particular case, but I doubt it. The subsequent impressive rise in the share price is increasingly telling me that I was wrong. That's what happens when investment process (i.e., hard, cold valuation) is allowed to become subordinated by the human involvement (i.e., what I call macro-emotion... the making of emotional decisions based on the macroeconomic stats and data one sees and hears being reported in the financial media.) Not only have I forgone capital appreciation, but in a few weeks time I will need to cut a cheque to the tax authorities! Not-too-smart.
