A game of chicken

This nasty bear market that we are stuck in is starting to play on the nerves of investors, traders, advisors, economists and anyone else with an investment portfolio, including Warren Buffet. By most measures, this current bear market is worse than any seen since the Great Depression. This latest downturn has caused more people to throw in the towel, go to cash or gold, and swear off stocks forever. All the "so-called" experts say to hang in there and wait for the rebound. Indeed, history shows us that all bear markets have eventually ended and new bull markets began. The question is when? We seem to be over due for a turn around yet nothing good seems to be happening. So what to do. The question for most people has become what is your time horizon? When will you need to pull money that you have put into the market, out? Current wisdom would suggest not to invest money into this market that you do not need for the next 5 years. The real mistake though is to sell all your equity positions and go to cash, bonds, or gold at this late stage in the game. The market is playing chicken. How much can you take. Remember, your "losses" are only on paper until you push the sell button. Past history would suggest riding this market, as terrible as it is, out. Consider this (from a story pulled on Smartmoney.com):

"A bull market may be hard to imagine right now, but as Fidelity points out it can be very costly to miss the beginnings of one when it does happen. Researchers at the mutual fund company found that within six months of a new bull market more than a quarter of the gains have already been booked, while more than 40% of the gains come within the first year. Standard & Poor's has found that investors on average recoup 80% of their bear market losses within the first year of the next bull."

And this analysis by Pinnacle Group, a wealth manager in Midlothian, Virginia:

"If you remained fully invested in the S&P 500 for the 20 years between 1987 and 2007, your average annual return came to nearly 12%. However, if you missed just the 10 best days during that span, your return fell to about 9%. Miss the 30 best days in 20 years? Your average annual return came in at less than 6%. In other words, missing a trading months' worth of rallies over 20 years lopped about six percentage points off the annual average return. The upshot? The fully invested saw $10,000 grow into $93,000, while those missing the 30 best days got $28,000 for their trouble. Now get this: Pinnacle notes that investors who did nothing at the bottom of the market during the Great Depression watched their portfolios take more than four years to be made whole. On the other hand, those who plowed another $10,000 into stocks on June 1, 1932, recovered all their losses in just three months."

Read the full article, here.

So there it is. This is a serious game of chicken. Will you get hurt, or dodge the bullet? This is real life. Jim Cramer and Suzy Orman can't help you now.