If you are an investor who has enjoyed the current bull market, congratulations. I'm sure you have done very well since the market bottomed in early 2009.

However, we all know that bull markets do not last forever and if you are concerned that the good times likewise cannot last forever, there are steps you can take to participate in a further rally and at the same time protect the value of your investment portfolio -- just in case something terrible happens.


The general advice from respected professional investment advisors is that you and I should invest, remain invested, and never try to time the market. That is solid advice because the vast majority of individual investors who do try to time the market by occasional (or frequent) buying and selling come up short. Their portfolios do worse than if they just had help onto what they owned.

On the other hand, those investors who suffered (and suffer they did) through the worst of the recent bear markets (bursting of the technology bubble and the 2008-9 financial disaster) do not want to go through that again. It is true that those who help for the long term came out ok. But anyone who needed cash and had to sell some of their holdings at, or near, the bottom, did not do as well.

Here are a few suggestions.

1. When you own at least 100 shares of any given stock, consider writing covered calls. This strategy helps provide an income when the stock price is no longer rising at an accelerated level. It also provides a small amount of protection -- just in case the market rally ends. However, if you are truly frightened about the future, then this method is not good enough.
    

1. When one or two of your stocks strongly outperform the rest of the market, then you truly made a great decision to own those shares. However, you MUST do a careful analysis and reach one of the following decisions:

• This is a once-in-a-lifetime stock and if you hold forever, you will be amply rewarded. If this is your true -- unemotional -- decision, then continue to own the shares.
• This company has done a remarkable job, but competition is increasing and although you anticipate that the price will continue to rise, you must face reality. The golden days are over and although this stock belongs in my portfolio, it should not represent such a large percentage of my stock portfolio. If this is how you feel, then sell a portion of your holdings. This is the usual prudent idea of diversification and asset allocation. If for example, you buy approximately $5,000 of any one stock when you initiate a new position, then sell enough shares to reduce your current value to that same $5,000, If the future concerns you, take some cash off the table by finding something else to do with the extra cash. However, if you are a dedicated long-term investor, then use that money to invest elsewhere.

3. Buy put options to provide insurance for the value of your portfolio. Make no mistake: this is an expensive choice and is suitable ONLY when the following is true: You are still very bullish and want to maintain share ownership. Buying puts will make a serious dent in your future profits, but is does provide peace of mind -- an essential for anyone who is very concerned about a server market pullback.

For the True Bear

The above ideas are NOT for the true bear.

If you are truly afraid of a market meltdown, then get some cash out of the market. Don't sell everything, but take enough cash out of the market so that you can tolerate a decline without too much pain. 

Remember that trying to time the market correctly is next-to-impossible for the majority of investors and  you do not want to be under-invested for the longer term. Avoid the temptation to "just sell everything" because that is a panic-type decision.