Keeping Your Head Above Water in 2014

So here it is: the highly anticipated 2014. The year that, supposedly, our economy will really rebound, not just halfheartedly rebound like it did way back in 2013. As an investor, the waters look warm. Many companies touted the phrase "cautious optimism" in previous quarters, saying that the end of 2013 wouldn't be much fun, but next year should pick up. The retail investor can easily have an itchy trigger finger, given all of the predictions and market rallying at year's end. While there isn't much use in "predicting" what the market will do in the coming calendar year, here are a few tips to keep your head above water in 2014.

If you must...
I get a lot of questions about Twitter (NYSE: TWTR  ) , but I am not a tech analyst. My value-trained mind screams "no" at every chance, and when I look at the company I just get frustrated. Then I tweet about my frustration.

Those with an eye on price and, more importantly, value, won't find any solace in the company's numbers. With a high-growth machine like this, especially one that isn't generating much in the way of profit, there is no question whether you are overpaying or underpaying at today's price. If you are buying the stock in the realm of reality, you are putting up a huge premium.

That's OK, so long as you have the right mindset for owning Twitter and its hockey-stick-growth brethren.

Twitter posted a huge gain in December. On Dec. 26, the stock neared $74 per share; on Dec. 30, it was at $60.50 -- a loss of nearly 18%. Absolutely nothing material happened at the company to cause nearly a fifth of its market value to vanish. in Thursday's trading, the stock gained 6%.

The point of this story is that you shouldn't own Twitter to get rich quick. Chances are you won't time it right, because market timing is a game that computers will beat you at 11 times out of 10. If you want the stock, don't study valuation and don't lean on the fundamentals -- they're all unfavorable at the moment. Investing in Twitter today is believing wholeheartedly that it is a disruptive company that will continue shaping the social-media landscape 10 years from now, just as it is has since inception. If you buy it, don't look at it again for another six months unless you want to experience the heart palpitations that come with owning such an erratic stock.

Buy, bye, buy
Most economic indicators and legions of analysts point to continued market gains for 2014. Housing growth, while not as ambitious as it was one or two years ago, is guaranteed as new home starts remain near historical lows. Unemployment is sitting pretty, and people are slowly coming to the realization that certain doom is a little further down the road than it was a couple of years ago.

As a result, the analysts are probably right that the market is headed north.

While that's great and all, don't lose your head. In a full bull market, cautious investing is more important than ever. Investors will run into richly valued companies left and right, and when the neighbors are cashing in on that hot 3-D printer stock, it'll be difficult to stay off of your Fidelity account.

Stick to your Foolish training -- buy great companies that don't need 2014's optimism to generate attractive cash flow and make wise management decisions. Take Nike (NYSE: NKE  ) , for example. The stock had a huge year in 2013, and rightfully so. Every single one of the company's segments is growing, which is impressive for a $70 billion corporation. You won't find it on the menu for most value guys, as the stock looks rich, but the truth is it's a no-brainer over the long term. Management picks up fantastic bolt-on acquisitions (like Converse) to infiltrate areas it doesn't already dominate. Meanwhile, back at base camp, the company's status as Earth's sporting-goods brand is only gaining strength. You can buy Nike today knowing that even if this predicted era of good feelings doesn't play out, you own a piece of a wonderful business.

Best of luck out there in 2014. With a bit of the reliable market hysteria, it could be another massive year for stocks.

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