The Big Bad Bear

The big bad bear is stirring again. So far he has stretched, yawned and peaked out of his cave. After his almost year-long nap he is hungry. A nice big steak would hit the spot.

That steak comes from cattle and not too far from his den there is a fat complacent bull munching in the pasture. He has his tail towards the bear and Mr. Bear remembers that 3 years ago he walked up to another bull and bit him in the backside. It looks like he can do it again.

We know who bull and bear really are. It seems that almost everyone is bullish and thinks we are in another bull market like the one in 1999 where all investors thought they were geniuses. History has taught (for those who wish to listen and learn) that major bull markets are followed by bear markets of equal length. The major bull came to an end after 18 years in 2000. Can we expect an 18-year bear market? If history repeats its cycle the answer is yes.

The recent return of the upward movement of stock prices from last year is very typical of rallies in bear markets. Many have a 50% retracement of the first down leg (as happened after the big break in 1929) that tops out with the resumption of the downward path.

Today our bull is feeding on the lowest interest rates in 40 years, a tax cut that puts extra money in the hands of consumers (where it belongs) and a strong housing market plus the belief that the market always does well in an election year. Let's hope all these things will come to pass.

The worst problem for investors is their complacency. They start making money and forget to protect their profits. These slip away when the market starts down and their broker says, "Don't worry. The market always comes back". If the investor did not learn to protect his assets from the 2000 debacle he is doomed to lose again. What should he do?

He should protect his investment account with stop-loss orders on all stocks and mental stops for all mutual funds. Brokers hate this and will try to talk their clients out of doing it. Why? Because he makes a commission as long as you are invested and nothing if you have cash in your money market.

It is better to make 1% in a money market than lose 20% or more of the principle as the market heads south. You don't have to be a market "expert" to place a stop. Decide how much risk you are will to take 5%, 10%, 15%? And place your stop accordingly.

When this bear comes out of his cave don't let him bite you ? you know where.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.

Copyright 2005

---

Wal-Mart: Discount Store, Discounted Stock?

As GuruFocus updates the stock buys and sells of gurus,... Read More

Trading Tips No 5: Stock Trading Curve Drawdown and Commitment

All stock trading and investing methods must deal with the... Read More

Its Better

Question: How does it get better when it gets worse?Last... Read More

I Love To Lose Money

Well, not really. What I mean is I don't mind... Read More

Complacency

During the month of January the Dow Jones Industrial Average,... Read More

Trading Education: The Best of Both Worlds!

I made my very first investment in the stock market... Read More

Analyzing Growth Stocks: An Important Focus For Any Investor

Analyzing growth stocks is an important focus for any investor.... Read More

The Exclusive Club of Large Caps

Picture one of those clubs where only the real heavyweights... Read More

Dividend Paying Stocks

I would like to share with the reader an article... Read More

The Next Bull Market

We are already in it, but you can't see it.... Read More

High Price/Earnings Ratios and the Stock Market: a Personal Odyssey

After some forty years of banking and investments, I retired... Read More

Selection Vs Direction

As I have said many times before in this column... Read More

China Syndrome

There has been great condemnation recently because China has been... Read More

Picking Mutual Funds to Outperform the Market

With over 6,000 mutual funds available, it may be tempting... Read More

Gurgle Gurgle

Caught in a whirlpool and being sucked under. No life... Read More

Starbucks Stock is Up

Starbucks earnings are up again and so is their stock... Read More

Option Spread Trading

Spread trading is a technique that can be used to... Read More

Zero Sum Game

Most people think the stock market is a zero sum... Read More

A Good Fund Manager

Every Wall Street analyst, financial planner and broker will tell... Read More

What is Involved in Peak Performance Trading?

There is so much involved in developing peak performance, that... Read More

Making a Stock Watch List

I am taking the time to help others learn the... Read More

Mutual Funds are Dead

You may have wondered why your mutual funds have been... Read More

How to Make Big Money Safely in Stock Market

(1) Stock Market is Tough Place to Make Any Money... Read More

The Secret Art of Backtesting

If you have not back tested your trading system, you... Read More

How to Evaluate Load vs. No Load Mutual Funds

If you have been dealing with mutual funds for any... Read More

?Fears Only Enemy Is Action?

What a great statement!I just heard someone use it in... Read More

Getting Even

I know there are a lot of you out there... Read More

Stock Market Course .... Day Trader Online Seminar ... Can You Generate Profits Trading from Home?

When it comes to stock market trading it PAYS to... Read More

Trading as a Business

What can I expect to make my first year of... Read More

A Common Misconception about Stock Prices

I cringe every time I hear a novice investor tell... Read More

Why This Bear?

People are constantly asking me why is the stock market... Read More

Emotional Involvement

I'll bet with almost anyone that has stocks or mutual... Read More

A Stock Market Investment Strategy

I feel that an investment strategy in the stock market... Read More