You will never be insolvent by being cautious

Following my bearish view posted yesterday expecting a sharp market turndown, I got a comment "As much as I like your crystal ball, I am also mindful of the wisdom that says "Market can be insane longer than you can remain solvent".  This market is insane, and it may last a little too long." This is a very good point and I'd like to post some further thoughts on my opinion.

I definitely have no crystal ball and as much as I'd like to be correct to see a sharp market plunge starting next week, I really don't know whether this will happen or not exactly per my timing. However, the key message of mine is not about the timing but rather "BE CAUTIOUS"! Why is it so important about this cautionary message?  Because this is the time when herd investors will start to chase the market by being aggressive to buy. You see, we start to see all the talking heads on TVs beginning to be quite bullish and talk about year end rally. We are also seeing Wall Street analysts giving advices that it's the great time to buy as the correction is over and we have seen the bottom now. When this kind of euphoric sentiment floating around while the technical indicators all pointing towards a rather overbought market, it is the most dangerous time to put your money to work. However, this is exactly the time most herd investors cannot hold up and they are very anxious to get in because they generally fear they will miss the boat if they don't buy now. That's why I'd like to be contrarian and caution anyone who care my view about the market status. Of course, I could be wrong but I can say you will never be insolvent by being cautious. We may miss some opportunity if I'm wrong but it's much better than to be caught up in a sharp market crash. If the market indeed turns out to start a powerful bull run, it will never be too late for us to join even if we miss the initial few points of increases.  With respect to the idea of shorting some stocks, let me be very clear: I'm not blindly advocating everyone to short anything. It is not suitable for the majority of investors/traders. It should only be considered for those who are experienced in shorting and know how to control their risk. Otherwise, there is indeed a risk of be insolvent when you are aggressively shorting but the market keeps going against you!! DON'T DO IT UNLESS YOU KNOW WHAT YOU ARE DOING AND ONLY PLAY WITH THE MONEY YOU CAN LOSE.

A final word about value stocks for long-term investment. I personally have quite a lot of such stocks that I have no intention to sell for long time. I do not suggest anyone to sell them as well simply because I'm expecting another market correction. As long as they are still good in valuation, simply keeping them will not go wrong. Personally I have virtually placed a short hedge for each of them because I'd like to be compensated for some paper loss if the crash indeed occurs. I also hold a sizable cash load and will only aggressively buy when I feel the final bottom is indeed in place.