Now if only I knew this then Rules to avoid a bear

Rules to avoid a bear
First is the fact that bad things happen in bear markets. The Sept. 11, 2001, attacks happened after a bear market was well under way. The Great Depression happened after a bear market had begun. The collapse of Lehman, Bear Stearns, Washington Mutual, Fannie Mae and Freddie Mac all happened during a bear market. The Nixon impeachment hearings that helped kill the market in 1974 happened during a bear market. So really, the first order of business is to avoid the bear.
This is easily done using one very simple timing rule that I have recommended often in the past, as it has worked for at least the past 60 years: Get out of the market when the Standard & Poor's 500 Index ($INX) ends a month at a level below its 12-month average. Don't return until it closes a month above the one-year average. Using this rule, you were out of the market after December 2007 at 1,468 on the S&P 500, and did not return until after July, at around 987. You're not out at the top or in at the bottom, but you still avoid a 32% collapse. If you want to get out and in sooner, with slightly higher risk, use the 10-month moving average instead; in the present case, you'd be out on Dec. 1, 2007, and back in on June 1, 2009.
Using this simple rule, the Lehman collapse was just a curiosity for you rather than a calamity. As for individual stocks, Clews' cane approach is less straightforward. You cannot buy right away, as panics are seldom over quickly. In most cases, you can wait at least a few weeks after an event that's large enough to break out of the financial news section onto the front page of newspapers, because you must wait for negative psychology to jar the shares of the most-admired companies out of the hands of suddenly frightened longtime holders. As a rule, my research shows that the stocks you buy should be at least 40% off highs immediately prior to the start of the emotional event.
Many famous companies fit this description in the two months after the Lehman collapse, and almost all are much higher now. IBM (IBM, news, msgs) fell to 40% off its pre-Lehman high at $72 in November; it's close to $120 now. Amazon.com (AMZN, news, msgs) was 40% off at $51 in October; it's around $80 now. DuPont (DD, news, msgs) fell 40% to $25.50 in November; it's around $31 now. Cisco Systems (CSCO, news, msgs) fell to $14.40 in November; it's about $21 now. Goldman Sachs (GS, news, msgs) dropped to $53 in October; it's $163 now. The 40% rule works in most cases of severe panics. Buying will feel so wrong at the time, but if you want to get well ahead of the crowd at emotional lows, you must accept the risk when others shun it.
No downturn on the horizon
I'm telling you this not to be a smart aleck, but to help you prepare for next time. And there most definitely will be a next time within our lifetimes. I do not think, though, that it will be as soon as the bears would have you believe. Every time that a 12-month-average buy signal has been given after a bear market of a year or more, the ensuing up move has itself lasted at least a year -- and more often three or four.

The primary reason: The government and central bank response to a calamity like the Lehman Bros. collapse and panic is typically so powerful and over the top that the monetary infusion cycle -- fiscal stimulus and superlow interest rates -- that ensues is much more persistent than anyone expects.

Robert Drach, a veteran analyst who has been researching these cycles for the past 40 years from his base in Florida, believes that the current monetary infusion cycle will exceed the last similar one that extended roughly from 1991-99. He's expecting that the major indexes will ultimately advance at least 450% from their lows, which would put the S&P 500 at 3,000 in the next 10 years. See you then.