The Year of Extreme Investing

A popular CNBC commentator recently remarked that it was very easy to remain "bullish in theory." Indeed, the conceptual case for owning stocks is strong thanks to improving profits, increased M&A activity, strong corporate free cash flow levels, and continued political support for the capital class.

Unfortunately, while it may be easy to remain aggressively long conceptually, investors cannot use theoretical profits to fund their retirements or kids' education. And as we all learned in the great bust of 2000-03, fundamentals like valuations, interest rates and profits do matter. Really, they do. So as my partners and I think about the opportunities in the equity markets, we must address these fundamental issues. In my opinion, applying these variables makes it more challenging to remain bullish in theory.

How high are stock valuations?

How much longer can corporate profit margins expand?

Where will interest rates be next year?

Are the stocks in my portfolio up a lot and fairly priced?

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