Fear & Loathing in the Land of All-Time Highs

What to Do? Many traders are asking the same thing as the entire US market reaches all-time highs. Should we ride the trend until the music stops, risking becoming long-term (underwater) investors in positions we're not entirely committed to?

Riding the wall of worry, I question my judgment. Am I willing to hold in the face of a 10% drop or more, or should I change my approach? So far, I've been scalping successfully, enjoying no drawdown and more cash while I sleep.

Several concerns resonate: increasing US debt, the tendency for inflation to stay higher for longer, and an overextended market. Additionally, the non-stop rally in crypto, even in the most speculative investments, suggests that risk is off.

While not coming off a Fed-infused post-Covid high, the alignment of issues feels similar, and I'd like to hold on to my gains.

Options include covering long-term positions, going short outright, or moving into value or dividend stocks. The incredible market enthusiasm has been fueled in part by AI, but my experiences with paid versions of Claude.ai, ChatGPT (4), and Gemini have been underwhelming. Crypto seemed more transformative and disruptive years ago, but when will it meet the real world in terms of practical transactions? (update: Claude.ai version 3.0 is much better than all in my opinion)

If you choose not to lock in profits or protect your positions, here's how it might go:

The first move down, around 2.5% on the indexes, will seem like an expected correction. The next drop will hit your speculative gains harder, and you'll hold on for a couple of days to wait it out.

After the initial shock settles, rays of hope will emerge, but the market will still lack material upside potential, leading to further declines.

At some point, you'll consider closing positions due to tax implications or portfolio balance, but the significance of your gains will be tempered by the reality of the unknown and the frustration of the losses.

This scenario may not apply to the longest-term investors or those with a net worth exceeding $10-15 million. However, for the rest of us trying to maximize returns and capture momentum, agility is crucial during upswings and downturns.

One more thing, reminiscent of Warren Buffett's approach: having cash on the sidelines is a massive hedge against drops. While many are stuck in positions with little free cash, you can capitalize on the lows accordingly. Something to consider.

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