We’re not pretending we know the answer to that daunting question.

But it should be given deep consideration by investors who plan to surf what many consider to be the current stock market mania (current pullback notwithstanding).

It’s something Keith McCullough has given a lot of thought to. The Canadian-raised co-founder of Hedgeye Risk Management has seen a bubble or three in his time and has learned from every one.

Here is a snippet of a conversation McCullough had with James Bianco, President & Macro Strategist at Bianco Research, where they bring their experience to the concept of being able to make money quickly in a bubble but knowing when to pull the plug.


McCullough:  At the end of the day, it’s not our first rodeo, we’ve screwed up publically many of ways, in fact probably more ways than many people have had the opportunity to.

For me at least, I think I learned how to be bullish in a bubble. Because the last times I wasn’t doing what I should be doing, which is making money in a bubble.

By the way, one of your recent quotes is one of the best I’ve seen from anybody in a while, you said, The great thing about a mania is that you make a lot of money fast.”

Bianco: You do, you make a lot of money real fast. But it can be a roach motel; the problem with a mania is you have to know when to get out.

What last spring taught us, or at least it will teach a lot of people, is “Oh if you lose a third of your money in six weeks don’t panic, stick with it.”  And then that becomes permanently half your money is gone and you go, “What the hell just happened? I was on top of the world, and then everything fell apart.”

That’s what I mean by you can make a lot of money real fast in a mania; but keeping it is the trick, not making it.

Because do you get chased to by a 10% correction like we had in September? Or a 30% correction like we had last March? No, it comes back. So how do you know when to get out?

If you don’t, you end up with this giant round trip.

That’s going to be the hardest part about this; not being bullish on the up, but knowing when to pull the plug gets you paid.

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