The average P/E ratio - Price divided by expected earnings in the next 12 months - in my portfolio is around 15.  I like to look at the inverse of the number which is an earnings yield of 6.67%.   I then compare the yield to fixed income assets and decide how much I like stocks versus bond/cash alternatives.  Corporate bonds are yielding around 3.7% as measured by the yield of LQD.  I view the 3% I earn for holding stocks as a good premium.  Historically, it's a high number and it supports the view of having an overweight position in stocks.

The S&P has a p/e of about 13 which is even more attractive.  My portfolio yields a bit higher than the S&P and to me accounts for the valuation difference.  Importantly, while I view stocks as good alternatives to bonds and cash, I do not think they are so cheap that there is no risk to holding them.

At these levels there is risk.  Perhaps not over long enough time horizons, but it exists nonetheless.  And that is why I always try to leave myself some cash to buy on dips.  Right now, I am very selective about what I buy.  I am only considering things that have what I believe to be temporary drops in value.   I also try to keep in mind that if something is falling in this market, there is likely a reason and I may just not see it.  Protecting against "falling in love" with a name there are two strategies.  One, cap your exposure.  Come up with a limit in size (shares) that you will not go over no matter how cheap a stock gets.  Two, stop-loss.  I do not advocate trading with a stop loss order in the market, but I do agree that there should be a number that makes you re-evaluate.  So for example, in my JCP idea I think that if we drop below 13 (about 10%) then I would just take my losses and set up for another day.  This view allows me to set how much I can lose on an idea and manage my risk.  I am more likely to do this for my speculative positions than for my core positions.  AAPL is a case in point that I am riding down and will probably come up against my share limit rather than any dollar limit.