Friday, January 25, 2013

Déjà vu: Contrarian Investing

It feels like this happened before. It feels like this happened before.

Look out, folks...The market’s booming and it seems like the party will never end. Not even Apple’s 15% plunge could derail this gravy train.

But as we rocket ever closer to all-time highs, it’s important to pump the brakes and glance in the rear view mirror. 

When things seem too good to be true, it’s usually time to sell. And vice-versa.

It was just 17 months ago that I urged people to start buying stocks because sentiment had turned so negative. Since then, the S&P 500 has returned over 27%. 

Of course, trying to guess short-term market direction is a fool’s game. No one except Ms. Cleo can predict the future. But time and time again, having the guts to zig while everyone else zags pays off.

I’m not saying sell everything--this rally may have steam left--but it makes sense to trim back some of your high-flyers and reinvest the cash in more defensive, dividend-payers. 

Or for bolder, bearish investors, take that money and invest in TZA (Direxion Daily Small Cap Bear 3x Shares), a hyper-aggressive, leveraged ETF that can deliver big returns quickly if the market moves down.

Note: TZA should only be used in the short-term and with “play” money. 

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