(Related video: Stock market bull says sentiment 'too high')
Alan Greenspan talked about "irrational exuberance" in 1996 when the Dow Jones Industrial Average had just touched 6,000.
He was saying that stocks were expensive,and he wasn't wrong. He wasn't wrong in his value judgment, but he was horribly wrong if he thought investors, collectively speaking, would care. The Dow was at 8,000 eight months later and rose to 11,500 over the following few years.
There is a great lesson in this.
Markets often go to excess, and trends often last far longer than most expect. We have been through these periods in the past and have learned two important lessons: These moves cannot be timed, and you'd better understand what you own and be sure it is high quality.
Janet Yellen's nomination as Chair of the Federal Reserve was approved by the Senate Banking Committee this week.
(Read more: Bubble? It's hard to find one yet)
While the minutes from the October meeting show a clear inclination to reduce or taper the Fed's $85 billion in monthly bond purchases, Yellen is clearly dovish.
She has been clear that low rates and an accommodative posture will be with us a long time. While the Fed's messaging is muddled, a move toward tapering is inevitable, and markets don't like it. This is a negative for bond prices and will likely result in a deliberate flight from more speculative stocks.
While investors may miss some of the upside because of a more defensive posture, we are mostly focused on guarding against downside moves.