I think of asset allocation as a deliberate act of investment strategy (Tactical Allocation). You could increase your allocation to cash(acting as opportunity fund) if you see stormy road ahead and want to have cash handy. Or you could overweight a particular asset class (example equities) when you think it will underperform/outperform the rest. A lot of the value investors (Martin Whitman, Seth Klarman, Monish Prabrai etc) I studied mentioned they have been overweight cash (ie increasing their cash allocation in their portfolio) last year but now have been gradually using it. So it's deliberate and they understand that they need the cash to scoop up the opportunities. They admit they cannot time the bottom but they also know when to pull out as they can't find any workout opportunites nor undervalued equities (as most equities were overvalued).
On the part of selling, most mentioned they have sell rules and it is dependent on how overvalued the equities is in relation to their portfolio (ie rebalancing) and whether better investment opportunities exist that they can sell out overvalued equities and moved into the better valued investment opportunities. In other words, they do locked in profits and Martin Whitman admits that his sell rule caused him to sell early but it is part and parcel of being a value investor.
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