Cash as Asset Allocation ?

[nsengkia]

I try to make myself lean against the wind by holding a percentage of cash in my portfolio that is inversely related to the P/E of my overall stock portfolio i.e. 0% if my overall stock portfolio P/E is below 5 and 20% cash if my overall stock portfolio P/E is above 8 and some fraction in between. Currently this works out to be 10% cash.

P.S.: Still fine tuning the P/E trigger points and percentages though so it is a work in progress that I hope will gradually improve over market cycles.

Just curious? Why your portfolio and why PE? Why not PE of broader market?

P/E because it is one of my major screening parameters.

While P/E of ST Index is readily available but the ST Index is not a good proxy of my portfolio (our returns deviate quite substantially).

I also tracked my portfolio P/E in the past and the last cycle peaked and troughed when my portfolio P/E was around 8 and 5 respectively. I was heavily exposed at the peak and used all my bullets up too quickly before the trough. Hence my keeping to this rule of thumb to "time the market" better this time round. To reiterate, it is still a work in progress