Quick! Make Your Turn to Avoid Market Whiplash

There are few harder things than cashing out of a winning trend before it stops, or positioning yourself against the grain before the trend reverses.

Recognizing turning points, and action on your beliefs, though, is one of the most lucrative moves in the investment world.

The 50-year chart below shows the cyclical nature of "growth" vs. "value" investing. The major surges and retracements typically last for years at a time. They often culminate in climatic blow-offs of the previous favored group and dynamic gains in the out-of-favor area of the market.

As of Wednesday, the bias toward growth investing had reached the third most dramatic overweighting in half a century.

From the depths of the 1974-1975 recession, value stocks went on a more than 13-year tear, far outperforming their more exciting rivals. A similar under-appreciation for value equities took place from 1994 through early 2000.

From then, through March of 2007, value bounced back with a vengeance. Former high flyers dropped dramatically, even as more mundane names were taking off.

There might be a bit more time before the tide turns. Calling that moment is impossible to know in advance. Smart investors, with reasonable time horizons, should be positioning themselves for the coming change right now.

How crazy was the internet/tech bubble of 1999-2000? Take a look at the graphic below to see how ridiculous the valuations were on some of the most popular stocks near the very top.

Anyone who overstayed in those hot stocks suffered debilitating losses through the end of 2002. From those crazy-high valuations, the big five tech stocks dropped from 50% to 80%.

Many of them continued to thrive on fundamentals. The damage to their share prices came via multiple compression.

Things are not nearly as bad now as evidenced by the current price-to-earnings vs. where they sat in March of 2000. Even so, many of the names shown, sell for well above their own normalized valuations over the past decade or so.

Why not start shifting at least some of your precious, and limited, capital into value-oriented stocks like those shown below?

Stocks on my baker's dozen list all sell for substantial discounts to their typical P/Es. Of the 13, 10 of them also pay well-covered dividends. I've written about each of them in detail here on Real Money Pro over the past month or two. Most have the potential to provide 50% to 100% or more in total return over the next year or so.

There's real money to be made when the market's focus reverses. History says we're very close to that turning point.

Act accordingly to avoid disappointment and reap the best rewards.

Price is long shares and short put options of all stocks on his bargain stocks list above.