Upside vs Downside
Karl Dinninger at Market Ticker said something very well,
If you have assets in the stock market, and have thus enjoyed the rally off SPX 666, either sell or hedge that exposure RIGHT NOW. The upside risk is what - 10%? What's the downside risk? 50% or more. You can hedge effectively with PUTs which have gotten much cheaper as the VIX has fallen, or simply sell out and go to cash. In my opinion you're insane to play for another 10% gain when you may suffer a 50% loss, but that's my view. Just don't say you weren't warned if you do nothing and the collapse occurs!
Certainly that was my sentiment when I decided to leave the market in the fall of 2007. The upside seemed small compared to the downside risk.
Currently I do not see there being more upside potential then downside risk. There is still too much bad news that I don't think has worked through the market yet. The market has rallied in response to some seriously bad news.
If you read Market Ticker you ought to be preparing for a financial crisis, although he does not quite say it like that...