"We think it is possible that we see a correction between now and the end of the year," he said.
A sudden spike of rates in June after the Fed indicated it might slow down bond purchases put Caris on notice.
"Markets got a taste of higher interest rates in June, and as we saw a month ago, we could experience a correction based on retraction of stimulus," he said.
Caris, who owns Ford and Hawaiian Airlines parent Hawaiian Holdings in his portfolio, is bullish on those two stocks. Ford rose 18.5 percent in the second quarter while Hawaiian increased 5.9 percent.
"We feel very strongly that Ford is the best-run auto company in the country and that Hawaiian Airlines is the best-run airline," Caris said. "Ford has the best lineup, best management and strongest global growth profile of anyone in the space.
"And for Hawaiians the time is right for this one. Capacity is being reduced to Hawaii, and these guys have the best service out there. Their efforts to expand in Asia will pay big dividends, and the way management is navigating a tough business environment with new initiatives is a testament to their ability."
Caris adjusted his portfolio in the third quarter by purchasing surfwear manufacturer Billabong, a debt-laden company that is in the early stages of a turnaround after being purchased by private equity firm Altamont Capital Partners. Scott Olivet, former chairman and CEO of sunglasses maker Oakley, is taking over the helm.
"Scott is one of the best in the business and we think will help return the company to profitability and growth," Caris said.
Caris is also buying semiconductor manufacturer RDA Microelectronics because of its exposure to smartphone growth in China.
He is selling Decker's Outdoor, a designer and marketer of footwear and accessories, and semiconductor manufacturer LSI Logic.
Hyman said there are three reasons the Dow and S&P 500 are continuing to hit records: the lack of investment alternatives; crowd behavior in which investors are chasing performance and selling laggards without paying much attention to value; and misunderstanding how to determine the fair value of an investment.
"Many investors felt burned by the stock market crash of 2007-2009, moved out of stocks after they fell, then were afraid to 'get back in.' So now that stocks have run up more than 170 percent from the March 2009 bottom -- in the case of the S&P 500 -- it seems many investors are feeling they missed the boat and are finally investing in stocks again. Unfortunately, many stocks that were bargain priced in 2009 are now selling at prices that are well above their intrinsic values."
Hyman said that with the Fed artificially suppressing interest rates, some investors feel they have no alternatives to keep their money working for them other than to invest in stocks, regardless of whether those stocks are priced at rational prices.
"Some investors are chasing high-priced, dividend-paying stocks (like real estate investment trusts)," he said. "Others are blindly investing in indexes via ETFs (exchange traded funds). And yet others are pouring money into mutual funds, forcing managers to get that money invested, all of which pushes indexes ever higher until the bubble ultimately pops."
Hyman made no changes in his portfolio for the third quarter after it edged up 2.2 percent during the April-June period. His best performer was Gaiam, a provider of health and fitness products, which rose 6.2 percent last quarter.
Dole's portfolio lost 6.8 percent during the quarter, but he's sticking with his picks, which include two Hawaii companies: ocean shipper Matson as well as the parent of Territorial Savings Bank. Matson rose 2.2 percent during the quarter while Territorial Bancorp slipped 4.4 percent.
"If the market continues to gain over the remainder of the year, I think that the sectors that have not participated in the rally offer the most promise," Dole said. "The recovery has to go beyond housing if it is to continue."
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