I was asked a question at gurufocus.com about said subject, and I took some time to answer it.

I would like to share my response with you.

- Vooch



> Vooch - 26% is a lot of cash for you! Are you feeling like you're sitting
> on a storehouse of ammunition just waiting for the enemy to walk by?

Great question, and the answer is: Yes!

Since I already have an overweighted percentage of my portfolio in Retailers, I am over-sensitive to what is going on with the economy. After Bernanke's move to cut rates, it told me The Fed thinks this economy is in recession. The Fed would never have cut rates 50 basis points if it felt it was isolated to just the housing or mortgage industries.

I think the problem is more severe than most people suspect.

The Fed Funds Rate cut also signaled a sector shift. Popular sectors, like Energy and Basic Materials, are going to be taken over by another sector if we're in a recession - there's going to be a cutback in demand. Therefore, I've shifted from double-weight to market-weight in these two industries and took profits at this "possible" peak.

All this other growth in the world is peanuts if the USA performs poorly. Over time, this will change, but not today.

My oversensitivity in the Retail sector bodes well for me, since I'm heavy in Retail stocks. I think Retailers could tank another -5% to -15% over the next 2-3 months. However, I raised the necessary cash to continue buying into these great companies (albeit slowly) while Mr. Market continues to get depressed about them. Today, was my initial move, to fortify these positions. I will wait, and I will keep buying, especially HD and WMT.

Then, when I sense the "shit-has-hit-the-fan", I will start buying on margin. We'll have to be deep in recession for that to happen, but it's also the best time to buy retailers.

16 Gurus here agree with me. In hindsight, I bought too early into Retailers, but I won't be leaving anytime soon. I've already sold HD 28 times-in-a-row for a profit with an average +37% annualized profit (avg. 200 days held) over the past 2-1/2 years. In fact, I'll be adding onto what I already own... building it up slowly and surely.

Right now, I also like ETFC and JNJ (two non-retailers on both sides of the spectrum). JNJ is the better of the two from the quality-standpoint with it's AAA-financial rating, but ETFC could outpace them performance-wise if they tread through their current uncertainty properly. Personally, I think ETFC should focus on core business - the growth will come via their core platform.

It's been a profitable year, but very tough for me, for several reasons, mostly: (1) retailers; (2) cut losses on homebuilders early; (3) cut losses on mortgage companies early, and; (4) ran 10% ultrashort position and got knocked out by the breakage of a 1927 bull record.

In fact, every year has been profitable since I started Value Investing May 3, 2005.

Before May 3, 2005 (when I started using Value-based philosophies), it was a couple years of Roller-Coaster-type-investing for me (big ups and big downs). Earlier this year, when I met billytickets, a funny thing he told me was, "All Roller-Coaster rides end at the bottom". He is right about that.

- Vooch

I'm at around 50% cash in my account. My equities are up 20% so far this year, following 22% last year. I'm not looking to be super greedy. I've made plenty and now I think things are scary, so I'm pulling my money out. I might be wrong and the market could fly higher, but I don't think there's a huge problem sitting on a half-cash position after such gains.

PS: If you are sitting on huge cash positions like me, it might not be a bad idea to diversify. My entire 50% chunk is in USD. There are currencyshare ETFs out there and diversifying cash holdings makes a lot of sense (FXF, FXY, FXCC, etc. earn rates similar to bank rates in respective countries). Just a thought.