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Sometimes There's Nothing Wrong With Staying on the Market Sidelines

NEW YORK ( TheStreet) -- It's football season again with lots of action on the weekends to get our minds off the dreary events on the financial and political battlefield.

Still, there are lessons from the gridiron on Sunday that can help keep us on track as investors during the upcoming week.

As you probably know, there are 11 men permitted for each team, with both sides vying for control of real estate. Another 42 players spend their time watching from the sidelines.

If you didn't know the rules, you might think that all those players on the sidelines could come in at any moment and do something really spectacular. But the rules won't allow more than 11 at a time, so if a player comes in from the sidelines, then another must leave the field.

Sounds simple, but when it comes to money, commentators and a few strategists who should know better sometimes refer to the "money on the sidelines" as just panting to get in there and pay stupidly high prices for financial assets. I've heard this argument before, and it appears to me to violate the rules of astute wealth management just as having more than 11 men on the field violates the rules of football.

When you buy a financial asset in the open market, you buy it from somebody else. You take your cash and give it to that person or organization in exchange for the asset. One football player has entered the financial field of play while the other has left. The same number of players is on the sidelines and on the field.

Yet the "money on the sidelines" argument is often used to get the ignorant to buy from the informed. I've seen it in stocks too many times to count. Oddly, you never see this argument made as an argument to buy bonds or gold or any number of defensive assets.

The large amounts of sideline cash will be with us for a while, or at least until the damage done to the collective investment and economic psyche is healed. But investment cycles are lengthy.

Currently, individuals are liquidating their equity holdings and buying bonds. We recently saw that Fidelity, the mutual fund giant, now manages more bond assets than stock assets.

Corporations have vast hoards of cash because they see no good place to invest it and because they remember that the banking system went dysfunctional just a few years ago. One might say that a substantial number of players are on an injured-reserve list and will not be playing any time soon.

So enjoy your football games and the rise in the stock market. Just don't go out on the field until you are ready, and that includes the helmet and padding. And if anybody tries to sucker you in with the cash-on-the-sidelines argument, get the referee to throw the penalty flag.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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