By Seeking Alpha
The problem with this kind of mentality is that it can quickly swing in the other direction at the slightest hint that the story may not be correct. This was the case Wednesday afternoon, following the release of the last FOMC meeting minutes that hinted at a Fed exit from QE. How can investors prepare their portfolio for this prospect?
Stay away from precious metals that have been rallying on the prospect of an infinite round of QE; and ETFs that invest in them like SPDR Gold Shares (GLD); iShares Silver Trust (SLV); Freeport McMoRan Copper and Gold (FCX); and Palladium (PAL), as discussed in a separate piece.
Stay Away from momentum stocks. Momentum investing is a strategy based on hype about an investment theme, a new product or a new industry that captures and captivates the investor mind-- at times when money is cheap. In the late 1990s, the theme was telecommunications and networking, with momentum funds flowing into companies like Ciena Corp .(CIEN), JDS Uniphase Corp. (JDSU), Corning, Inc. and Ariba Inc. (ARBA). Now the theme is social media and web-based companies, like Netflix, Inc. (NFLX), Open Table Inc. (OPEN), and LinkedIn Corp. (LNKD). Momentum investing can be very rewarding as long as it lasts. But it can result in hefty losses once it fades away, usually when liquidity dries up.