You'll never hear this conversation after a little league baseball game: "Son, you did a great job sitting on that bench. The way you didn't play or even get up to bat was wonderful."

Our society glamorizes action. ESPN shows us clips of basketball players hitting game-winning shots and poker players making bold all-in bets. They don't show us clips of players passing up shots to give even better shots to their teammates, or poker players making great folds.

The skill of knowing when to sit around and do nothing is vastly underappreciated, although it might be one of the most important aspects of generating superior returns. Several times over the past couple years I've liquidated most of my portfolio and vowed to wait until the next stock market crash to start buying again. Within a couple weeks I'd be near fully invested again. It was too hard to stay out of the action.

Is the market overvalued?
Since 2003, the stock market has been on a one-way train higher. Owning stocks like Apple (NASDAQ:AAPL) or Buffalo Wild Wings (NASDAQ:BWLD) would have made you a lot of money. Although I wouldn't characterize the current market as a roaring bull market, investors seem to have grown complacent and forgotten that it's possible to lose money. Risk is almost an afterthought.

Although market timing is often a dirty word in value investing circles, the choice of whether to invest in cash or stocks might be one of the most important choices an investor makes.

Charlie Munger's investment partnership lost over half its value in the terrible bear market of 1973-1974. This wasn't due to poor stock picking -- he stuck through the bear market and made his investors whole -- but rather a bear market that inflicted damage on all participants indiscriminately.

Warren Buffett managed to sidestep most of the carnage by dissolving his investment partnership in 1969. After the bear market caused stocks to plummet to absurd prices, it was like shooting fish in a barrel -- this was when he made the famous "I feel like an oversexed man in a harem" comment.

If, not when
The hard part isn't figuring out if the stock market will drop, it's figuring out when. Buffett dissolved his partnership four years before the crash. It must have been hard to stay out of the game for so long.

That said, I think investors might want to consider keeping some powder dry, because fatter pitches might lie ahead. I don't know if the market will crash in the next year or four years later. All I know is that I want to be prepared. I think using placeholders is a great way for investors to cash out of the stock markets.

Placeholders 101
Placeholders are the types of investments that offer considerable downside protection and decent upside potential. They are great ways to "cash out" part of a portfolio because it prevents investors from getting too antsy sitting on the sidelines, while also preventing the investor from falling behind if the predicted market crash doesn't materialize.

Buffett-like investor Mohnish Pabrai has often described his investment in Berkshire Hathaway (NYSE:BRK-A) (which was made when the stock was around $80,000) as a placeholder. The stock was unlikely to suffer much if the market crashed, thanks to its considerable cash hoard and collection of rock-solid companies, but still was able to beat the market on the upside

I think special purpose acquisition vehicles (SPACs) are also great placeholders, if bought at a proper discount to liquidation value, which I detailed in two previous articles. Investors could also use arbitrage scenarios, which aren't correlated to the stock market, as placeholders. Fellow Fool Rich Duprey does a great job of describing an arbitrage situation in Mueller's (NYSE:MWA) class A and B shares.

Some other placeholders could be beat-up stocks in beat-up industries where a lot of bad news has already been flushed out. I think MDC (NYSE:MDC) is a good example. The housing market has already suffered from a crash, so I think most of the bulls have already fled the scene. Thus, MDC offers downside protection thanks to its solid balance sheet and decent upside potential.

Keep in mind that different types of investments offer different risk exposures. An arbitrage situation is likely much less correlated to the stock market than something like Berkshire or MDC. So investors might want to invest in a mix they feel comfortable with.

Related Foolishness:

MDC Holdings and Buffalo Wild Wings are both Hidden Gems recommendations. Berkshire Hathaway is a Motley Fool Inside Value recommendation. Try any one of our investing services free for 30 days.

Fool contributor Emil Lee is an analyst and a disciple of value investing. He owns shares of Mueller. Emil appreciates your comments, concerns, and complaints. The Motley Fool has a disclosure policy.