It's Diwali on Dalal street

This year's Diwali may be celebrated in Dalal Street with lots of happiness. Markets have rewarded investors / traders / speculators with lots of returns. This profit is like to be ploughed back with people buying lots of textile, white goods, cars and upgrade their personal life style. This may further result in higher sales in these industry resulting in higher profits, spiralling the stock prices even further.

As an investor, what should you do:
(1) This could be an apt time to clean your portfolio. Just pull up you DP holdings / MF holdings. Check if you have any junk investments. If so, you may dispose off and trim your portfolio
(2) Even in those good companies / investments that you may be holding, it would be good if you cash in some profits. After all in stock market, all gains that you see on the computer screens / TV / Newspapers are notional profits. If an only if you sell them and count these currencies, it would make some sense.
(3) Having booked profits, it would be tempting to spend these money to fulfill long pending desires. No doubt you need to address them. But money spent on enjoyment is an expense - you never get it back. Hence it would be ideal to keep some portion of this money for investing at future date.
(4) Usually when investors book profit, they would be in great hurry to reinvest the same in some other stock for further profits. You need to understand that when you sold some of your stock for a profit (at a higher price) and plan to buy some thing else immediatly, it logically means it would also be quoting at a higher price. Hence curb the temptation and stay in the sidelines to buy at lower price.
(5) Do keep in mind that at 20687 (closing BSE value on 13th oct 2010), index is trading at PE of 24. That is pretty expensive against long term average of 18.2PE
(6) Being an Liquidity driven rally, it is pretty clear in everyones mind that once money flow stops, market would start correcting.

As Warren buffet puts it : In stock market thare are two emotions : Greed and Fear. Right now everyone is greedy - They want more and more profits. It would be ideal to be defensive right now.