Now that you have some of my favorite long ideas, here is what concerns me about this market. I wrote something similar around this time last year: Most stocks are up, valuations are high and spreads have narrowed. Even ignoring the well-documented and significant fundamental imbalances in the global economy, it's hard to find shares that fit my new purchase model: down and cheap, with decent business conditions. So I continue to expect modest returns from the equity markets, and I remain wary of many sectors in the market. I'd avoid much of the mega-cap part of the market, including most technology stocks, consumer durables, consumer staples, utilities, and energy and commodity cyclical stocks. Valuations appear far too high, and profit margins for many sectors are at peak levels. Some sectors might show low price/earnings ratios, but normalized profits are probably significantly below current levels. After the sixth consecutive year of outperformance for the Russell 2000, small-cap and mid-cap stocks are even more expensive than their large-cap brethren. You can still find a cheap name here and there, but for the most part, the smaller part of the market has been picked over in this latest bull run. Small stocks tend to be more sensitive to changes in interest rates than large-cap stocks. And Fed Chairman Alan Greenspan has well advertised his intentions with rates. As we finish a surprisingly good year for the stock market in 2004, enjoy its conclusion and remember that the whole year was made in two months after the election. Some analysts are speculating that 2005 could contain a powerful, 20%-ish bull run. This idea is intriguing; I might even give any first-half rally the benefit of the doubt. When it's all said and done, though, I expect 2005 to be as challenging and frustrating as was most of 2004.