Probably everyone would agree that the world is full of risks at the moment: Japan's earthquake and associated nuclear crisis, Libyan civil war and NATO’s air strike, increasing oil prices, worsening EU financial debt crisis...... You name it. But the stock market simply ignores all of them and is roaring straightly up and up, no stops. I like the metaphor to say that the market is firing on steroids. Those who know medicine can understand that patients with severe infections may still feel very good if they are given steroids but this is only a temporary effect. Fundamentally the steroid effect is only making the situation worse and the patient will suffer more due to the worsening condition without feeling it. Honestly I become more scared than half year ago to see this kind of euphoria in the market. The market is clearly irrational to me! But fighting with the market is often very painful. We need to remember: The market can stay irrational longer than you are solvent. For me, I have dozens of long positions I planted 1-2 years ago. Thanks to the bullish traders in the market, they are all performing extremely well with great profits on paper. To hedge against a potential significant market crash, which to me is very likely in the next few years, I have started to add more short side positions that will benefit from the crashing market if it happens. If you have stocks that are doing well, you should consider to do something to protect the paper profits. You may either use a trailing stop to ensure you will at least get the major portion of the profit if the worst comes, or you may consider to buy some put options against your stocks. The premium of put options can be very cheap when the stock is doing well but the put options will significantly increase their prices if the underlying stock price significantly drops. The key is to find the right strike price and the term/duration for it.
Although I think the market overall is very bad in finding good stocks to buy, it does not mean there are absolutely no good stocks existing. Actually many blue chip companies have very good values in them. I especially like some of them which are experiencing some temporary hiccup, which leads to lost interests of short-sighted investors. The depressing stock prices actually make them more attractive and of much better value stocks. I see one such stock and am working on accumulating it at the moment. It is Johnson & Johnson (JNJ), a leading pharmaceutical and consumer health company. JNJ is probably on the list of every major income mutual fund. Knowing or without knowing it, you likely have used JNJ products one way or the other. Its products cover a wide range of people’s life such as baby formula, Tylenol, band-aid, contact lens as well as medications and medical devices, etc. JNJ’s business is extremely profitable and very stable and it has consistently paid increasing dividends over decades. If you can buy JNJ at a good price, you are almost like simply saving your money in the bank but with better and better interests. You can literally just forget the money without any worry. If you buy the stock and reinvest its dividends via DRIP, 10 or 20 years from now, you’ll suddenly find a huge pile of money accumulated with it for your retirement. While I like JNJ very much, I haven’t expected to be able to buy JNJ at this depressed price anymore for many years. However, in the past year or so, JNJ has been facing some very serious manufacturing problems, which have resulted in many and ongoing recalls of its household products like baby Tylenol etc. Facing with one after another warning calls from the FDA, JNJ is struggling at the moment, which has spooked investors and they have run away from it. As a value investor, I'm happy to see this as I'm having now a great opportunity to invest in a great business at a great price. After all, it is just a very temporary issue and JNJ will overcome it for sure. At a PE ratio of around 10, it is very cheap for such a great business. You probably won't be able to see this kind of investment opportunity anymore with JNJ. This reminds me of a similar opportunity with Genzyme. You can find the details I wrote on Sep 30, 2010. I just cashed out my Genzyme positions for about $5000 a few days ago. I sold it at $5.10 per share and bought it back at $0.02 per share. A $5000 profit in less than a year without even holding the stock is certainly felt great but you can also make good money if you dared to buy the stock when it was very depressed at that time. There are more than one ways to make money. The key is to find an opportunity and put money to work one way or the other. For JNJ, buying, holding and reinvesting its dividends is a great opportunity at the moment for me. If its price further drops, I will buy more to get even better cost bases. This is what I called accumulating shares for deep value stocks. 
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