Focus on Survival

There are no winners, only survivors.
-- Frank Gifford

To succeed in this market is to survive. That means keeping your capital safe and losses limited. Unfortunately in the world of Wall Street, survival is not viewed the same way. Most Wall Street professionals try to find a way to stay heavily invested such that they will have less losses than the overall market.

Losing less money is considered a big success on Wall Street. In the world of fund management, relative outperformance vs. a benchmark is the focus, but any individual who is struggling to only lose 30% or so vs. the 37% that the S&P 500 has lost is going to barely survive.

The key here is to forget the Wall Street model of investment management and to focus zealously on protecting your precious capital. Your job is not to stay invested in a lousy market or to try to guess when the bottom might come. Your job is to preserve your cash so you can build up your gains when the odds are in your favor.

Focus on keeping your account as close to all-time highs as possible. The most destructive thing an investor can do is rack up big losses that you need to recover before you can have your account back in the black. Making up losses is hugely unproductive. If you lose 40% of your capital, like the Nasdaq has done so far this year, then you need a gain of 67% just to get back to even. That is why you just sit and buy and hope.

This is one of the worst markets in our lifetimes, and we have to stay focused on surviving as best we can. The folks on Wall Street are already buried in losses, and they are going to keep pushing us to do what they have done -- ride a bunch of stocks down as they constantly try to predict a major turning point.

A turning point will come, and we will join the party. We'll probably be late as we await confirmation of a tradable bottom, but it won't matter one bit because we won't have to make up a 40% or 50% loss like the serial bottom-callers. Stay patient and focus on capital preservation.

We have a weak open on the way and lots of negative news out there. Technically, the October lows are the key levels to watch. There is no way we can trust this market right now with this deteriorating technical pattern and challenge of support levels on the horizon.

Stay tough, stay patient and don't risk your capital on hope.

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Know What You Own: Rev Shark mentioned Nasdaq. Companies that trade on that index include Cisco (CSCO - commentary - Cramer's Take), Intel (INTC - commentary - Cramer's Take), Google (GOOG - commentary - Cramer's Take), eBay (EBAY - commentary - Cramer's Take), Qualcomm (QCOM - commentary - Cramer's Take), Gilead (GILD - commentary - Cramer's Take) and 3Com (COMS - commentary - Cramer's Take).

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James "Rev Shark" DePorre is the author of Invest Like a Shark: How a Deaf Guy with No Job and Limited Capital made a Fortune Investing in the Stock Market. He is founder and CEO of Shark Asset Management, an investment management firm, and he also operates sharkinvesting.com, an interactive online community that serves and educates active investors. DePorre holds business and law degrees from the University of Michigan, is a member of the Michigan Bar Association and a former tax attorney and CPA. He lives in Anna Maria Island, Fla., with his wife and two children. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Rev Shark appreciates your feedback; click here.