Should I hold cash, or remain fully invested?

I know what Mr. Buffet said; be greedy when others are fearful and be fearful when others are greedy. That contrarian view requires a firm eye on valuation, and an ability to have ready cash when everyone else has leveraged themselves up to their eyeballs.

My approach to this is as follows: I ask myself whether I'm happy with the price of the earnings and dividends, or the interest earned on each issue when I purchase it. If I am, it doesn't matter whether the market is up or down, hot or cold. I can be fully invested and still feel that I haven't over-paid for the earnings/dividends/interest payments. That doesn't solve the issue of having dry powder when the shooting starts. One wants to pounce on great bargains when they present themselves. The best I can do here is to keep about 5% of my porfolio in an income fund; currently I like DNP. It doesn't fluctuate much in value, throws off about 6% and change every year and is easy to liquidate when I want to buy something that has a higher return on investment. It fulfills my biases on dividend payments, portfolio growth by DRIP, etc.
Perhaps I'm fooling myself, but currently cash IS trash, from a standpoint of interest earnings.