My latest Sunday Washington Post Business column is out, titled, As stocks mark new all-time highs, many investors are left behind. This morning, we look at four factors: Valuation, Market internals, Global weakness  and Overbought markets. we also consider if these mean we might be at a market top.

Perhaps the most important part of article is the four strategies you can employ to make money during the next market crash versus the buy-and-hold strategy so many investors are saddled with.

Here’s an excerpt from the column:

Imagine this: The Dow Jones industrial average travels 15,000 points, and you have nothing to show for it. Same for the S&P 500-stock index, a full 1,800 points, and the net gains are zero, nada, zilch.

How did this happen? If you employ a buy-and-hold strategy, the round trip in the equity markets is simple math. Dow 14,000 down to 6,500 and back again equals about 15,000 points. Any stocks bought in late 2007 are just now, after six long and tumultuous years, returning to break even, even as stocks mark new all-time highs.

What does this mean for investors? Let’s look at alternative investing approaches, including what you could do to avoid this. A few strategies you can easily deploy will make the next round trip — and, yes, there will be one — much more profitable.”

What are the four strategies?

They are:

1. Dollar cost averaging

2. Portfolio rebalancing

3. Asset allocation tilt

4. Market timing

The first two strategies are automatic; anyone can — and should — do them. The third strategy is a little more challenging; it requires that you pre-determine factors that will lead you to shifting your allocations. If you can do this in advance and stick with a plan, its worth the effort.

About the fourth one? I described it thusly:

“Market tops are long-drawn-out processes; bottoms are emotional, panic-filled events. Very, very few people can call either on a timely basis. You are not one of those people.”

Full article at the link below . . .



As stocks mark new all-time highs, many investors are left behind
Barry Ritholtz
Washington Post, April 7 2012  

Category: Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

7 Responses to “How to Help Your Portfolio in the Next Market Crash”

  1. nanotech says:

    Year typo on source link :)

  2. call me ahab says:

    getting back to even! Break out the party favors

    and thank god for Jim Cramer:


  3. carleric says:

    I never try to call tops or bottoms but find that tight stops and avoidance of buying panic works pretty well to smooth out the bigger movements…..of course one will probably miss a little up and down but it works for me.

  4. bear_in_mind says:

    Great column, Barry!

    I’d say it’s a nice compliment to your piece approximately 2-3 weeks about investing time frames. That’s probably one of the biggest cognitive bug-a-boos for most non-professionals because it’s soooo easy to get lured into a juicy ‘story’ about a company, then next thing you know, you’ve moved from having a 20-year perspective to slipping into day-trading mentality. Might get lucky, but likely gonna get burned.

    Knock-on-wood, I’ve used the last two months to trim laggards and raise some cash in anticipation of a nice, moderate summer lull to (hopefully) add positions in stocks a wee-bit closer to 50-day and 200-day SMA’s.

  5. constantnormal says:

    I somehow missed the advice on detecting and correcting mistakes. The poor sod who started dollar cost averaging in the second half of 1999 and put it all into and S&P 500 index fund has been under water over 90% of the intervening time, and if one accounts for inflation is probably still in the red.

    Same thing, even worser with the NASDAQ composite.

    The Russell 2000 has done nicely, much better than the DJIA, which is really too narrowly-focused to be called an “index”.

    Of course, there was a mistake in this scenario (at least one). The biggest would have been averaging into the markets toward the end of 1999, the second biggest would probably have been focusing on equities and not bonds.

    Everybody makes mistakes. They are unavoidable. So a future column ought to be dedicated to the detection and correction of mistakes.

    This one came perilously close to resurrecting the “market knows best” theory, wherein the investor puts his chips on the index fund of his choice, closes his eyes and waits for the gains to roll in.

    Depending on what they buy and when, those gains may take a VERY long time to materialize, even if they dollar averaged on the way in and faithfully rebalanced quarterly. When one makes a big enough mistake at the start, it stays with one for a long, long time to come — unless promptly corrected. But the detection of a “mistake” is not always as simple as seeing if the asset goes up in the days following its purchase, almost nobody can consistently successfully pick the exact bottom, and if one waits until it has risen sufficiently to ensure that some sort of bottom lies in the past, one may still be buying at a top.

    Enter the discipline of error detection and correction.

    I eagerly look forward to seeing such a column in the not-too-distant future.

  6. Al_Czervik says:


    I meant to comment on Sunday but you said it better than I could.
    Also, I find that making frequent *small* adjustments when I am feeling underinvested or overinvested helps me deal with the emotional aspect of the market and avoid freezing-up or making large moves at the wrong time. I have been doing that in my retirement accounts since 2000 and have managed to avoid much of the downs while catching more of the ups.

    It works for me. Otherwise, I would have trouble dealing the roller-coaster ride of the past 13 years.

  7. As a trusted voice, you are in position to suggest that readers use options to hedge portfolio risk. I’m not talking about spending gobs of cash to buy puts. Nor do I suggest spending thousands of dollars on education.

    Conservative option strategies are available. Asset preservation and risk reduction are available. But most people distrust options, believing them to be gambler’s tools.

    Your readers can learn all they need to get started for the price of a book. – or high-quality $37/month lessons. Please do those readers a favor.