“Trim your exposure to stocks when you feel the need but never get out of the market completely. You must have some exposure to the stock market at all times. The risk of being out of the market completely is just too great.”

This is the gospel of the investment industry. This is what sells mutual funds. This is also how people lose money (sometimes lots and lots of money).

I call bullshit.

In fact, I believe the true investor starts with the opposite approach. The true investor begins by putting her hard-earned capital into risk-free t-bills or FDIC-insured CD’s, etc. She looks for compelling investment opportunities. When she finds something that she understands to be a very attractive opportunity then, and only then, she commits capital.

It’s not rocket science; it’s just common sense.

The bottom line is this: if you don’t have a very good reason for owning a particular investment you shouldn’t own it. It’s as simple as that.

The investment industry, however, wants people to believe it’s much more complicated than that. The industry wants you to think you’re not smart enough to decide what’s worthy of your hard-earned capital. The industry wants you to pay commissions 24/7, 365 days a year in a zillion different markets around the world. The sales pitch (scare tactic): “you might miss out on a HUGE upside move if you don’t own at least a piece of everything and stay invested at all times.”

My counter-argument: you might also lose a boatload in the process (i.e. the stock market over the past decade). Plenty of people have made a fortune simply putting their money to work in t-bills and CD’s, saving as much as possible and letting the compounding do the work. You don’t need to do any more than this.

You can certainly do better if you can find a few great opportunities over the course of your investing career. But there certainly is no compelling reason to be invested in everything at all times.