Dow hits 10,000, how much further can we go?

The Dow hit a psychological milestone today by getting over 10,000, a place it hasn't been in over a year. Now is a good time to look back at your decisions of the past year and evaluate how you've done. Did you stay the course when it looked like the world was going to end at the beginning of the year? Did you abandon ship and get out of the market entirely and switch to cash?? Were you fearless and undeterred and voraciously bought stocks when they were at their cheapest and have since doubled or tripled your money??

I wish I can say I was fearless...that I realized that the recession wasn't going to turn into a depression...that I foresaw March as the greatest buying opportunity in our lifetime. That couldn't be further from the truth. Back then, I was extremely bearish on the banks and the economy. I thought we were headed for an apocalypse. I was so confident that we were gonna crash that I tried to profit from the peril by shorting all the bank stocks, certain that they were gonna go to zero within a month. I was so sure that stocks were going lower that I sold most of my families mutual funds (except for gold) in an effort to avoid further losses. A couple days after I did all this, Vikram Pandit, CEO of Citi announced that their 1st quarter losses were going to be much smaller than previously thought. The market took off. Shortly there after, Wells Fargo was so excited to announce their positive 1st quarter earnings numbers that they announced a week early, catching the markets by surprise...the Dow took off again.

At this point I lost a significant amount of money, but I was still undeterred in my bearish view and believed that this positive upswing was temporary. I couldn't fathom that after months of hearing how bad things are gonna get, that the situation was already starting to get better. Didn't make sense to me. I bet more aggressively against the market in my personal account. Then the federal government announced it was coming to the aid of all the distressed banks and basically decided to help the whole economy by throwing hundreds of billions of dollars and, well you know what happens in the ensuing months.

I remained bearish on the economy till about June. I was constantly waiting for the downturn and placed bearish bets accordingly. I thought my friends that were buying into the rally were nuts. Were they not looking at the same facts that I was??? Finally, I realized that I was playing the stock market that was in my head and not the one that was actually happening right in front of me. Why was I fighting this bullish run? I adopted more of a, "if you can't beat'em, join'em," and things started to get better from there.

The market was on fire and I was finally on the right side of it. The riskiest stocks were the one's going up the most because they got beat up the most. I started investing in commodities, oil and gas stocks, technology, and biotech. There was one pre-conceived notion I had to get out of my head: I had to realize that you will never buy a stock at it's cheapest and you will never sell a stock at the top. I wouldn't buy a stock like Apple because it wasn't at 85 anymore, it was at 95. I kept trying to wait till it got back to 85, but it never did. Finally I decided to stop fighting the tape, suck it up, and buy it at $120. I still hold that position (it's $192 now!). With every stock that you own you have to ask yourself, "would I still buy this stock at this price?" If the answer is no, then you should sell it, if yes, then you should buy more of it.

You don't need a list of 50 stocks in your portfolio, especially if you don't have millions of dollars, you just need to find 4-8 good companies or ETF's, preferably in different industries so you have diversification, and slowly build positions in them over time. For example, I've built the following equity portfolio for one of my young clients and it's done quite well for her IRA:

20% in BP (oil company w/ 6.5% dividend) You can also use the OIH ETF to get oil exposure

20% XLK (technology ETF containing companies such as Apple, Google, RIMM, Intel, Cisco

20% XBI (Biotech ETF--pharma companies have lots of cash and are acquiring smaller biotech firms now cause they can pick them up for cheap valuations, but they are paying large premiums for them so it brings up the whole sector)

20% GLD and GDX (gold ETF and gold miners etf)

20% BIK (Emerging markets BRIC ETF-Brazil, China, Russia, India leading companies)

This is a good and simple aggressive portfolio for a young person who can take risk. She also has corporate bonds which pay steady interest to you and are more conservative.

Will the rally last forever?? Of course not, but you should ride it out while it lasts and make as much money as possible before it turns around. Don't try and pick the point it's gonna pullback, that's a loser's game and you will get burned. There's no reason for the markets to have a major pullback this year. There is too much money on the sidelines and big hedge funds need to show their clients that they're worth the 2% and 20% in fees that they charge so they have to participate in this rally and keep driving the markets up. Do I think we'll go much over 11000?? Doubtful as that bear in me still thinks there's lots of unresolved problems in this economy that need addressing, but I think 10500 is right around the corner.