Global warming notwithstanding, it looks like many parts of the U.S. are going to have a white Christmas, some for the first time in years. And Santa has delivered the fabled Santa Claus rally, with the Nasdaq Composite hitting new highs for the year this week. That s quite a gift for Common Sense investors, since the index finally cracked 2220 on Monday, the latest selling threshold in the Common Sense system for buying and selling.

I always treat a selling threshold as a cause for celebration and an opportunity to lock in some gains. True, I ve taken some money out of stocks on the two prior selling occasions this year, which turned out to be premature. But why be greedy? The prudent selling of appreciated assets in order to buy undervalued ones is the essence of successful investing, in my view. No one has perfect timing, including me. If they do, I d be suspicious as the Galleon insider trading investigation reminds us.

The only people who seem really miserable over the market s latest surge are the hard core bears. I know a few. They re not having the happy holidays everyone hopes for. That s one reason I m never net short the market, hoping for a decline. Who wants to celebrate everyone else s misfortune? The main reason, however, is that history demonstrates that the stock market rises more often than it falls, so the odds favor the long investor. I can sympathize with the short sellers this year, since there seemed to be every reason to expect the worst. Even I thought there would have been a correction by now. Yet 2009 is on track to enter the record books as one of the best ever for stocks.

see When Common Sense Says Sell . I did this in part because I was impatient and in part because I incorrectly had in my mind the notion that the next threshold was 2200. (The Common Sense system calls for buying stocks at thresholds of 10% declines, and selling on 25% increases.)

Neither of these is a good excuse, and those mistakes cost me a few extra points of gains. It didn t matter much, and I ve long said this system isn t an exact science. But I should have been more disciplined. It s a good lesson that even a simple system like mine can be difficult to implement when emotions get in the way, as they surely will sooner or later. Indeed, if you re so pleased and excited by the market s latest gains that you can t bring yourself to sell anything, then you re in the grip of emotion, too.

If you don t want to sell anything (for tax reasons, perhaps), you can still sell calls, generating some immediate cash. Or you can reduce your exposure by hedging. A while ago (see Using Short ETFs to Prepare for Correction I reported on the ProShares family of short exchange-traded funds, which are designed to realize the inverse of various indexes. I invested in the ProShares UltraShort S&P 500 (SDS), which aims to double the inverse result of the S&P 500 in a single day. So if the S&P 500 rises 10% on the day, this fund should decline 20%, and vice versa.

Now, with the Nasdaq Composite over 2220, I ve added the ProShares UltraShort QQQ fund (QID) . The result is I ve hedged my positions in the SPDR S&P 500 (SPY) and PowerShares QQQ (QQQQ) funds (exchange-traded index funds that are long the S&P 500 and the Nasdaq-100, respectively) without having to realize any taxable gain. Whenever the Nasdaq Composite drops 10%, providing a buying opportunity, I ll sell these short funds and use the proceeds to invest in long positions. So when the time comes, they ll provide welcome liquidity.

The ProShares funds have generated some controversy (and a few lawsuits, though not the funds I ve mentioned), so readers should investigate these before following my example. I ve been monitoring the performance of the UltraShort S&P 500 fund on a near-daily basis, and so far it has been living up to its objective, coming very close to a double inverse performance of the S&P 500. Indeed, there s such an array of innovative products now available that even small investors can mimic strategies once reserved for professionals.

This being nearly the end of the year, it s also an ideal time for tax loss selling, in the event you have some losses after this remarkable rally. My only candidate this year is teen retailer Buckle (BKE), down about 9% since I recommended it in May. Its recent same-store sales figures, while good, apparently weren t strong enough to support the stock s multiple. But my source (my teenage niece) still likes it, and I think improving consumer sentiment will boost sales next year. So I m holding on.

Having completed these maneuvers, and with Christmas Eve at hand, I intend to forget about the stock market for a while and ignore my portfolio. That s another hallmark of the Common Sense approach: It leaves plenty of time for other interests. There s no better time than the holidays to take advantage of that.