The effect of declining stock prices on cash allocation

The Saul’s Investing Discussions board continues to supply examples of how stock price trends impact investor behavior. Two prominent board members — PaulWBryant (Bear) and Stocknovice — have revealed some telling portfolio allocation decisions over the past year. Below are their respective portfolio cash levels at the end of 2021, when SaaS stock valuations were still near their peak, versus the end of 2022.

Bear’s cash allocation:

12/31/2021:  10.2%
12/31/2022:  30.0%

Stocknovice’s cash allocation:

12/31/2021:   0.0%
12/31/2022:  23.3%

Note how their cash levels are considerably higher at a time when the valuations of their stocks, while still high, are considerably lower versus a year ago. Rather than exercise prudence in late 2021 when SaaS stock valuations were at historically high levels, they’ve decided now is a better time to maintain high allocations to cash. What induced Bear to hold triple the amount of cash from a year earlier, and what prompted Stocknovice to go from fully invested to having nearly a quarter of his portfolio in cash? Might it be fear and uncertainty resulting from the dramatic devaluation of the stocks in their portfolios? Bear admitted as much in his year-end portfolio review when he confessed the psychological benefits of holding so much cash under the present circumstances. (He subsequently edited the post to remove that confession.)

Their higher cash allocations at this point reflect a level of caution that was not exhibited on that message board in previous years when they could count on V-shaped recoveries after sharp declines. Perhaps they are finally beginning to grasp that the current investment environment for SaaS stocks is different from the 2018-2021 period. Their higher cash levels also suggest they have discovered that the “Be greedy when others are fearful” approach to investing is not as easy in practice as it is in theory.


great post!

They are still waiting for the quick V-shape recovery, which will probably not come anytime soon. How long will they be able to hold out with there strategy? Previously +60% YoY growth was the measure of all things, now it will probably be +30% after there stocks will leave the hyper growth levels within next 12 months.

I can’t wait to see when Saul’s Boys will change their investing and trading style. Saul could save himself this embarrassment and just retire :wink: The fintech community just keeps pumping and dumping.

if your stocks all go down over 50%, your static cash position will grow as a % of your port automatically.

So am not quite sure how much of that is a pivot to more cash vs their investing strategy in 2022 was so poor that it unintentionally inflated their cash position by %.



Ok, I’ll take the bait. How about Bear’s (@PaulWBryant’s) cash allocation by end of November instead of December? After all, the peak occurred in November.

11/30/2021:  20.2%
11/30/2022:  13.1%

Our examples would seemingly reach opposite conclusions, so how about the full picture of 2021 and 2022?

The average is 21.9% and the median is 20.7%. The average for the period up until the peak is 21.8%, compared to 22% for the period after the peak.

Ultimately, we could arrive at all kinds of conclusions.


I agree with Dreamer. My personal cash position (as a percentage of my portfolio) rose over the last year as my stocks cratered

I don’t follow Bear or anyone at Saul’s that closely. They all pretty much have the same stocks, so I read a couple of their monthly summaries and see “-55%” or whatever and that is all I need to read.

No new stocks discussed either.

So, to your point, it looks like he increased cash, but ironically on a dollar basis he probably didn’t all that much.

Start 2022 with $1m port and 10% cash, = $100k in cash.
End 2022 with $450k port and 30% cash, = $135k in cash.

So either way, every $1 in cash has grown as a % in his port, whether he has meant to purposely allocate more to cash as a position or not.