Most financial journalists are very poor at providing readers with advice that is "wise." One of the few good ones out there is James Stewart, who writes for the Wall Street Journal and Smart Money Magazine. Provided below are some pearls of wisdom from Mr. Stewart's 9/29/09 column.
"So the lesson of this rally seems to be that the strong are likely to get stronger, which is very much the hallmark of a momentum-driven rally. If you think this rally will continue, and want to buy now, this evidence suggests you should look for stocks that have already done well and appear to be overvalued. While it flies in the face of value-driven logic, these stocks could very well be the best performers in the last gasp of a rally."
To me, this is the logic of the hard-core trader and momentum investor. It not only depends on the rally continuing, but assumes investors will know when it’s over, and it’s time to get out. So far as I know, no one has perfected a system that can provide such perfect timing.
As I’ve said before, no rally goes on forever. The tide will turn, and when it does, I suspect the overvalued stocks will be the hardest to fall. That’s why I’ll continue to prune my exposure to the highest-flying stocks when and if we hit another selling threshold. Cash may seem dull today, but remember what it felt like just a year ago?