In this case it is the huge gap up post Apple/nanke that shot the stock market from off of the ropes and back into near all time high territory. While I am net long because a snickers bar went for a nickel 50 years ago, I also recognize that gaps get filled and that the market has come pretty far pretty fast. In other words, I am not going to invest blindly all of my energy into being long equities here as I think it’s almost a sucker’s bet… You basically have an overvalued market with decent growth prospects which makes it like having a gut shot straight draw and a flush draw but you’re only getting 1.2 to 1 on your money.

While technically, you normally make the all in call in this situation because of pot odds, with the stock market there is always momentum and seasonality to think about. In poker, you just hope you aren’t being cheated by the room or other players.

Basically, the stock market is back up to where it was in 2007 and this means that investors will either want to pull their money out and buy things like real estate, jewelry, fine art, etc… or they will stay long stocks. IF the ultra rich remains long and we end up making new all time highs in the S&P and Dow, I wouldn’t even consider shorting the index funds or even individual stocks. To me, the short side is the hugely expensive web 2.0 stocks — I only want to be short these if the overall market is going down. If it is flat or going up, I want to be on the sidelines (as I am now) and not invested in much of anything. That being said, I do think timberland, commercial real estate, rental property, raw land, etc… make a ton of sense right now because the market for these investments is down considerably still from their all time highs. In some cases, real estate values are stil 70% below their highs in 2006. What this means to value investors is that stocks aren’t the only asset class that matters. In fact, I would argue that investing outside of the stock market could yield much better returns than investing in stocks. Even Buffett seems to think real estate is down enough to start making some sense. True, demographic trends in the U.S. aren’t as favorable to real estate values as they used to be, however the population should still continue to rise in aggregate over time which means that supply and demand will eventually put a (much needed) tailwind behind the housing market.

In conclusion, the gap higher will eventually be filled. That’s why they say “gaps get filled” because they almost always get filled over time. So, for my money, I am not very interested in equities when compared to owning a private business or a group of them. There aren’t too many companies one would want to buy at 16X earnings when one can find private companies for sale at half of that multiple.