I like Will Rogers' old saying about how we should worry about 'return of capital' instead of 'return on capital'.
A lot of little guys lost 30% or more when the last bubble broke, and a number of those are just getting back to even because they missed the big run up. Guess what - does any of this raging gold, oil, food and stock price run-up resemble anything you have seen in the last 3 years? It's another bubble and it will pop again.
There is room in any portfolio for some hedging in case of a sudden market reversal. The pros do it by options, futures, and other tricks, but there is no great harm in having a short ETF at a time when the market seems way overbought.
The key is balance, you don't want to be 100% on the side of any trade, and that is a good reason to take profits off the table.
I have held a short dollar position for quite awhile, and it is doing well right now. But I added a short Euro position today because of the big runup. Am I hedging my short dollar position - well yes - if the Euro drops I will still hold my short dollar position and will take profits on my short Euro position. If the Euro keeps running up, I'll cash in my short dollar position and enlarge my short Euro position. You can do the same thing with stocks, as long as you are not 100% in on the wrong side of a trade.
For once a rational post. My thoughts, exactly. One can never be on the "right" side of a trade, or investment, all the time. The point is to be more right than wrong. These days, with so much irrational money chasing stocks ever higher, prudence dictates a hedge.
While it is true that going "conservative" would have been a bad bet over the past six months, history would seem to indicate the top might be in. My wife always was smarter than I was. That's why she married me.