The primary threat to the high-yield market isn't a wave of corporate defaults, but rather a reversion of the compressed risk premium that investors demand. This premium has been historically low, and a return to normal levels presents a significant valuation risk, even if fundamentals remain stable.

Reconcile contradictory advice by segmenting your capital. Hold years of living expenses in cash for short-term security and peace of mind. Separately, invest money you won't need for 10-25 years into assets to combat long-term inflation. The two strategies serve different, non-conflicting purposes.

Buffett's strategy is to generate annual returns for shareholders. His moves, like holding cash, reflect his expert assessment of short-term market opportunities. Average investors with multi-decade horizons should not mimic him but rather see it as a data point for near-term volatility.

Hetty Green's famous strategy to "buy when things are low" was enabled by two key factors: always having cash on hand and possessing the emotional stability to act decisively when others were panicking. Having liquidity is useless without the courage to deploy it during a crisis, a combination few possess.

The true value of a large cash position isn't its yield but its 'hidden return.' This liquidity provides psychological stability during market downturns, preventing you from becoming a forced seller at the worst possible time. This behavioral insurance can be worth far more than any potential market gains.

Contrary to popular belief, Vanguard's chief economist suggests that in a high-debt, low-growth future, overweighting fixed income is superior to holding gold. This assumes the Fed will maintain high real interest rates to fight inflation, making bond yields more attractive than equities, which would face a lost decade.

The modern high-yield market is structurally different from its past. It's now composed of higher-quality issuers and has a shorter duration profile. While this limits potential upside returns compared to historical cycles, it also provides a cushion, capping the potential downside risk for investors.

In a market where spreads are tight and technicals prevent sustained sell-offs, making large directional bets is a poor strategy. The best approach is to stay close to benchmarks in terms of overall risk and allocate the risk budget to identifying specific winners and losers through deep, fundamental credit analysis.

In the current late-cycle, frothy environment, maintaining investment discipline is paramount. Oaktree, guided by Howard Marks' philosophy, is intentionally cautious and passing on the majority of deals presented. This discipline is crucial for avoiding the "worst deals done in the best of times" and preserving capital for future dislocations.