An investing legend who's nailed the bull market at every turn shares the hidden secret of future stock gains

It's conventional stock market wisdom that when investors run out of fresh cash to deploy, the end of a rally is near.

Luckily, we're nowhere near that extreme scenario.

As Goldman Sachs pointed out in a recent research note, the current cash position of 3.2% for mutual funds is "normal," showing that "skepticism abounds." In other words, the stock market lacks the type of overexuberant sentiment that can leave it vulnerable.

Legendary investor Laszlo Birinyi — who has nailed the eight-year bull market at every turn — wholeheartedly agrees. In his view, the high level of cash still sitting on the sidelines is one of the most underappreciated elements of stock bullishness. Sure, strong earnings growth is great, but it's futile if there isn't ample money to invest.

In an interview with Business Insider, the president of Birinyi Associates discussed his thoughts on cash levels, while also covering such hot-button market topics as volatility, equity valuations, exchange-traded funds, and the effect of politics on the market.

Here's what Birinyi had to say (emphasis added):

"I don't think people appreciate how much cash there is in today's market.It seems like everything is just an excuse to put that cash to work, whether it's a tax bill or economics or [President Donald Trump's chief economic adviser Gary] Cohn not leaving the White House — those are all just excuses. The bond market is unsettled, and you've removed some of the stock market concerns of the last couple years, most notably earnings. People are feeling a little more confident and willing to invest, and they have the cash to do it.

"The other issue is that while the averages are lackluster, there's a lot of trading money focused on individual stocks. The S&P may not have moved 1% or 2% in however many days, but the reality is that stocks are having really good days. You have a lot of individual stock volatility, which reflects the fact that people have the funds and they're looking for vehicles in which to manifest those funds. They're using single stocks as the vehicles, not broad asset classes such as emerging markets or gold or commodities. The critical ingredient in the market is cash."