Forget About This Stupid Rally

The market environment these days reminds me of a chant breaking out at a frat party. The chanters at such events don't seem to really care about the implications of what they're chanting for, they're just drunk and want to see a particular outcome.

I can almost hear it: "Rally! Rally! Rally!"

If you're reading this, it's very likely that you're at least at this raucous stock market party. And let me tell you, just like in those hazy frat houses, it can be really hard not to join in the chanting.

The excitement grows
Why is a rally so exciting? That seems all too obvious. Those invested long in the market -- which includes most investors -- are seeing stocks across the board head for the sky. Over the past month, the S&P 500 index shrugged off a quick downturn and crept up another 2%. Meanwhile, stocks like Amazon.com (NASDAQ:AMZN) and MasterCard (NYSE:MA) left the market in the dust with gains of 39% and 18%, respectively.

With each passing day, investors see their portfolios growing, and once again start to envision mai tais and white-sand beaches in their retirement picture. Does it matter what's driving the rally? Of course not! Does the market's valuation matter? Of course not!

"Rally! Rally! Rally!"

Sobering thoughts
But much like revenge, investing is best done when you're not all hot under the collar. Whether it's a rally or a market swoon, big movements have a tendency to rile up investors and get them to act in ways that are contrary to their best interests.

And it's not like the reasons to question the rally aren't recognized. Last week, my Foolish colleague Jordan DiPietro highlighted three things that could sober up this rally in a hurry. Namely, the continuing effect of the housing bust on household pocketbooks, the slowing of government spending, and a possible increase in the ridiculously low interest rates that central banks have been offering. Meanwhile, fellow Fool Alex Dumortier set to work debunking the myth that sidelined cash would drive the rally further.

To venture outside of the Foolish universe, PIMCO chief Bill Gross has been beating a drum against the rally for a while. In his most recent market commentary, he showed that over the past 50 years, asset values in the U.S. have grown faster than the economy. As he put it, over that time period "you would have been far better off investing in paper than factories or machinery or the requisite components of an educated workforce."

If the correlation between economic growth and corporate profit growth that Gross found is of any significance, it seems very likely that we'll see the raging inferno of paper asset growth slow down to a timid smolder.

"Rally! Rally! Rally?"

Instead of chanting
If the "F" of "Foolish" stands for anything, it very well could be "Fundamental." If now seems like a time for anything, it seems like a good time for getting back to the fundamentals of investing.

What do I mean by this? Simply: Paying mind to Gross' concerns and focusing on productive assets and companies that are making real goods, and investing in those companies only when they're at reasonable prices. Companies like Goldman Sachs (NYSE:GS), which thrive on the growth of paper assets, have been thrilling to watch over the past decade or so, but in the sober light of day it may be reasonable to question just how much value they're actually adding to anything.

I've been taking what I believe is a Foolish view of the investing landscape and eschewing the highfliers leading the rally in favor of companies with real output that I can invest in at a fair price. Here are a few of the companies that I have my eye on:

Source: Capital IQ, a Standard & Poor's company. P/E = price-to-earnings ratio.

In the end we can all feel free to cheer on the rally, but when it comes to placing your bets, your investment dollars are probably safer elsewhere.

Motley Fool co-founder Tom Gardner says that he needs only one metric to find great companies. Click here to find out which one.