▼   ▼   ▼   ▼   ▼

If you sold everything that you needed to finance all of your big outlays for the next five years like I said you should on October 6th, when the Dow opened at 10,000... you could have saved even more money… and remember, both of those calls happened after the demise of Lehman Brothers… the big bad event that ushered in our garden variety depression… which I think lasted until March… cash would have been a much better investment than stocks during that whole period… this is a lesson that I learned a long time ago… I learned it during the crash of 1987... and unlike a lot of what I have learned, I did not have to pick this one up the hard way… one of the great breaks of my life and my career was that I was 100% in cash on Black Monday October 19th, 1987... 100% in cash for the largest one day percentage decline in the Dow… it is the call that made my career.. it is the call that gave me credibility at my newly minted hedge fund.

That was back before CNBC even existed… although, we had the old financial news network which CNBC replaced back in 1991... what I learned from the crash of 1987, was the same thing that you may have learned from the crash of 2008 and the beginning of 2009... hard concept… it is almost never too late to sell… heading up to the crash of 87 the market was already doing poorly… do you know that the week before the crash had been the worst week in the history of the market… until we did even worse in October of 2008... I was selling as the Dow dropped from 2800 to Dow 2400 back then… and then to 2200 on the Friday before the crash… imagine that… rather than worrying about missing the recovery… I was much more concerned about my potential downside… the franchise that I had created, and how much money I could lose if the bottom really fell out of the market.

When stocks are heading down it is easy to convince yourself that you can’t sell… because you do not want to miss the inevitable recovery… but you can not let that kind of hopeful logic overwhelm your powers of reasoning…. remember what I say, hope is not a part of the equation… going into 100% because you hated the market was virtually unheard of back in 87... but I did it anyway… because I was concerned that we were due to an even bigger sell off… we had been ramping… the market was selling at 29 times earnings… there was just lot of crazy things happening… and I felt very ill at ease… these days, being 100% in cash is not what most people do.

If you have your money in a mutual fund, they usually consider keeping 15% of their money in cash to be a pretty bearish guess… 15... mutual funds never, well, most never allow you to sidestep a decline… the money managers calling the shots can’t afford a bigger move higher if the market turns… but they will be fine if their fund goes down with the market… so do all of the other funds that they compete with… so they have every incentive to stay as close to fully invested as possible… it is an easy comparison against the others… only you care enough about your money to take it out of stocks… that, more than any other reason, is why I believe that individuals… you, ordinary people… not pros… can do a better job picking stocks and managing your own portfolios than most money managers can and will do for you… you have the power to sidestep the big declines, like I did… you have the power to be in cash when the market crashes… and then use that as an opportunity to buy stocks at much lower prices… rather than as an opportunity to drink cheap scotch on your dirty linoleum floor… because you owned stocks all the way down and you are so depressed about losing so much money.

Here is the bottom line…