In the past, when I hit a major downdraft in the market, I find myself debating whether I should reduce the number of positions in my portfolio, or shrink the mean position size. The latter is the easier choice, which is why I take the former, and shrink the number of positions, forcing me to eliminate marginal names in the portfolio.
Today I added to Nam Tai Electronics and Deerfield Capital, bringing my over all cash position down to 8%. As I work through my reshaping, I expect my cash level to decline further, but I would probably liquidate one of my 35 stocks without replacement to help fund the reshaping and rebalancing.
At times like now, this is a process that hurts, and sometime next week, I will announce my portfolio shifts. That said, the portfolio has held up better versus the market recently.
Full disclosure: long NTE DFR