Advice on Investing in a Bubbly Market

 | Oct 02, 2013 | 2:00 PM EDT
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There typically seems to be a growing appetite to invest when markets are climbing higher and higher. This desire is actually a very puzzling phenomenon. In a very real sense, this behavior is no different than a person who would rather pay full price at a clothing retailer knowing full well that in a month that same shirt will be 40% less. Disregarding the discount, the urge to buy it now takes over.  

I would recommend resisting such urges in the market today. As I look at the list of stocks on the 52-week low list -- a good indicator of investor sentiment and confidence -- I count fewer than 30 stocks among all the major exchanges that qualify. And most are names that few have heard of, like Control4 Corporation (CTRL) and Pedevco (PED).

Investing in a bubbly market is no different that investing at any point in time. If done sensibly, investing should be made on the merits of valuation and at sensible prices. In the wise words of Loews (L) CEO James Tisch, "If there is nothing to do, do nothing." What Tisch really meant here is that in investing, doing nothing is actually doing something. Sitting still is indeed an active investment decision. It's a decision that implies that the risk of allocating capital today is not worth the future potential return assumed.  

While you are doing nothing, however, you actually ought to be doing something. You should be building watch lists, following the moves of the best investors and keeping tabs on the financial performance of excellent ideas. For example, is J.C. Penny (JCP) a falling knife or simply a turnaround opportunity of a lifetime? As shares continue to make new lows, at what point, if any, does it become an opportunistic real estate play? Will private equity ever jump in? Or is JCP too toxic to consider?

Now that Carl Icahn is into Apple (AAPL), will he remain passive or will his patience run out in the next few months? Considering that ValueAct capital was able to effectuate change at Microsoft with a relatively minor stake in the company, Icahn may be able to do the same with his 1% stake in Apple.

In the next six weeks, the next batch of 13F's will be filed with the Securities and Exchange Commission, revealing what investors were doing during the third quarter. I doubt you will see anything of significance from the value-seeking crowd. The prices aren't as good as they once were.

After five years of continuous stock market gains, a healthy breather is not out of the question. In reality, stocks shouldn't be bought or sold based on technical indicators like how long a market has been rising or declining. We had a nearly 20- year bull market starting in the 1980's. It is really about price levels, and today's price levels are not as inspiring as they once were.

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we like this chart here, it appears ready to move higher. BOUGHT BZUN OCT 35 CALL AT 3.40
Large-cap, high-quality McKesson (MCK) is too cheap now, at $147.51 or so. The stock hit $243.60 more than 2.5...
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