Investors need to sell stocks when markets rally and avoid diving in when stock indices fall in an attempt to play the market, Morgan Stanley strategist Greg Peters says in a note.
"Sell the rallies and don't get cute," Peters says, according to Business Insider.
"We would advise against getting sucked in by cheaper valuations: There is a de-risking trend at work, and valuations are somewhat secondary at this time, in our view."
Stock markets have taken wild swings in recent months due to repeated crises stemming from the debt-ceiling impasse in the United States, the Standard & Poor's downgrade of U.S. ratings and European debt woes.
Bearish trades, or short sales, against the S&P 500 broad stock index surged in August, the month the U.S. government raised the debt ceiling and avoided a default at the last second.
The proportion of S&P 500 shares outstanding sold short on Aug. 29 rose to 3.03 percent, the most since the end of November and up from 2.37 percent at the beginning of August, according to New York-based Data Explorers, Bloomberg reports.
Policymakers are to blame in part.
"We've had inadequate policy responses to the problem of too much debt, and that makes people concerned," Mark Travis, chief executive officer of Jacksonville Beach, Florida-based Intrepid Capital Management, tells Bloomberg.
"Investors and advisers are doing more now on the short side to protect their capital and they're trying to find alternatives to flat market returns," says Travis, who manages $1.3 billion and uses short selling as an investment strategy.
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