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This blog post originally appeared on RealMoney Silver on Jan. 21 at 7:41 a.m. EST.

When investing or trading, it's important to live and learn.

Here are some of my key takeaways, thus far, from Mr. Market this week:

    There are substantive risks to momentum-based investing. Even in a bull market, mo-mo investors in Coinstar , F5 Networks and other highfliers, including several industrial plays such as U.S. Steel and Freeport-McMoRan Copper & Gold , as well as traders/investors in commodities such as gold, which is among the most crowded long trades extant, learned this tough lesson over the past couple of days.

    While the overall market's price action suggests limited downside risk, there might also be limited upside reward, as the price action in certain market-leading stocks suggests that a lot of the good company-specific news and that of the economy might have been discounted. (I continue to see a sideways market in 2011.)

    The market's unrelenting advance is not likely unlimited, as trees don't grow to the sky. The uninterrupted advance since last summer could grow less consistent and more challenging as monetary stimulation wanes, as we pass the easy compares and as the bills of our fiscal imbalances come due.

    If investing/trading in highfliers, particularly in light of a relatively low VIX, buy protection. Consider cheap protection by purchasing out-of-the-money puts. If you are short, consider the cheap protection of buying out-of-the-money calls.

    The recipe for investment success in the coming months might lie with a more flexible and opportunistic trading strategy (and through the identification of group rotation) rather than a buy-and-hold strategy. (Sell the rips and buy the dips in early 2011.)

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    While bottoms-up S&P 500 profit projections remain elevated, the path to smooth and self-sustaining earnings growth does not remain a certainty. For example, profits at several high-profile financial companies disappointed vis-a-vis consensus. As well, higher input costs are beginning to call into question the general vulnerability of corporate profit margins in the quarters ahead.

    Always be prepared for surprises, and be diversified -- that's why I do my surprise list every year -- case in point, the Steve Jobs announcement at Apple .

    Doug Kass writes daily for

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    At the time of publication, Kass and/or his funds were long FCX, although holdings can change at any time.

    Doug Kass is the general partner Seabreeze Partners Long/Short LP and Seabreeze Partners Long/Short Offshore LP. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.