With liquidity continuing to flood the markets, and the Federal Reserve desperately trying to get investors get back in the risk game, one can not ignore the averages making new all-time highs. Wall Street is never shy to push on the accelerator as well ($1,000 price targets and all), and neither is the financial media. They’ll line up plenty of pundits to proclaim almost every call they made along the way coming true. How many have been on today alone with the “I have owned Google since the market bottomed in March of 2009″ call?

Some of the action we were watching today included Vornado Realty Trust (VNO), which was higher despite news it may be unloading a chunk of J.C. Penney (JCP) shares near 52-week lows. FedEx (FDX) also continued to surge higher in today’s action. Industrial equipment plays Cummins Inc. (CMI) and Deere & Co. (DE) quickly let yesterday’s concerns about a slowdown in China not affect today’s price action. Walgreen Company (WAG) did not participate in today’s rally following the company’s update on February sales. Refiners like Valero (VLO) and Marathon Petroleum (MPC) gave back a smidgen of yesterday’s pop as well.

It’s pretty amazing to watch stock price movements on a day-to-day basis (not that long term investors should, but we have to do it here because it’s part of our job) and see human nature at work. Unfortunately the work we see is not pretty from a smart investor standpoint. Whether it is people arriving late to the party and bidding up momentum stocks in short bouts of frenzy, or jumping into positions all at once, the groundwork for trouble will certainly be set forth. Making money in the market is not about hating stocks at $40 and loving them at $70, but instead it is from a more rational approach of looking at pullbacks in quality names as buying opportunities for the most part.

Of course, you need to avoid shares that have pulled back and may be headed for further trouble. This is where having a sell discipline makes a lot of sense. Typically stocks that pull back 20-30% from 52-week highs warrant investors to pay close attention to what is making the stock fall. In conditions of overall market weakness, when most shares are getting hit, the idea would be to understand why the markets are going down and decide which names have the least downside during these periods. All along, you should remain constant in putting capital to work.

It could be worse for investors that have missed the bulk of the rally the last few years. You can be one of those stubborn market players who has been trying to short every uptick on the biggest momentum names. There’s no quicker recipe for getting wiped out than someone putting this strategy in place during huge bull runs. Shorting requires an amazing precision of timing or a willingness to solely focus on names that are struggling and not looking to draw lines in the sand because of valuation arguments. Unless you have tremendous liquidity and time, most end up losing these battles — ironically just as the names they have been targeting begin their descent.

No one knows when the tide will turn on today’s momentum favorites (Google, Amazon, LinkedIn, Salesforce.com, etc.), but when you have multiple analysts putting $1,000 price targets on Google a couple of mornings in a row, those who are short only feel further pain. It’s impossible to predict when and whom the market will turn on, as it did with Apple (AAPL) quickly after it reached all-time highs back in mid-September.

There’s no question we are seeing a sense of urgency in the markets for those who have capital to put to work. However it is in times like this where even the best investors can get a bit too aggressive. Despite the adulation the financial media gives Warren Buffett, Berkshire Hathaway (BRK-A) didn’t exactly get a discount in acquiring food giant H.J. Heinz (HNZ) at all-time highs. As much as we all love the brand (and it was a favorite name for us here at Dividend.com for several years), the deal is considered pricey in most analysts’ eyes. Paying 21 times earnings for a food company is much higher than we have seen for deals in the past. Granted, we are talking about an awesome brand, but how legendary would it have been for Mr. Buffett to have pulled the trigger just 12 months ago, when a premium takeover price could have saved his company billions of dollars? We’ll look back years from now and most will probably praise the purchase (so will we), but for the time being Mr. Buffett is mimicking the recent investor panic to put capital to work in anything and everything that’s working right now.

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