Apart from individual stocks, a liquidity cushion must also be applied to the whole portfolio as, especially in market panics, the complete market can go to incredibly low levels! Seth Klarman, the manager of one of the most successful value hedge funds in the world, The Baupost Group and the author of the book Margin of Safety which provided me the inspiration for this book, is known to often have up to 50% of his portfolio in cash when there are no low risk bargains to be found, as was the case in the 2000 dot-com bubble.
