Clear the Decks and Hunker Down

One who has lost confidence can lose nothing more.
-- Pierre-Claude-Victor Boiste

What is killing this market and is going to keep the downward pressure on it is a lack of confidence. We have no confidence because there is no certainty. We have absolutely no idea how much worse the credit crisis and economy will become. We have a real worldwide contagion now as European banks are scrambling to survive. We even have folks talking about a depression.

With such chaos and downright panic, there is no way to price it and no way to be confident in the price levels of stocks. When we can't figure out how much worse things might become and what things are worth, confidence goes out the window and no money flows into the market.

The lack of confidence is contagious, and it's building quickly as the headlines in the popular press blast us with fear and negativity. Nonetheless, some Wall Street gurus will tell us it's a great time to buy. They have already told us three or four times already that we have seen the lows, so no one is believing them now. Most people are far more worried about protecting their assets than they are about trying to make money in the market.

I can go on and on about what is plaguing us, but what we have to focus on is how to navigate through this and be ready to profit when things get better.

I've been saing for quite a while now that when the market is in a downtrend like this, you simply can't be holding long positions. Way too many have gotten in trouble trying to anticipate a turn. The serial bottom-callers have buried folks, and of course many of them are now panicking and saying it's not too late to sell.

I have to hold my nose to agree with some of the advice from these folks, but it isn't too late to do some selling. It is never too late. You can always jump back in very quickly. I wouldn't be selling into this very ugly open, but I would certainly be thinking about finding ways to lighten up. People get way too emotionally attached to certain stocks; when you sell them, you'll be amazed at how much better you feel.

Once you do that, you can focus on crafting watch lists of stocks that you want to buy when the market acts better. More often than not you will find stocks that offer far better potential than the ones you clung to on the way down.

We are seeing some real panic this morning, and that may set us up for another bounce, but in this sort of environment, any bounce is likely to lead to more selling. People feel trapped and want out, and they are not going to trust bounces.

Many are looking for the Fed to come to the rescue with a rate cut, which brings to mind the phrase, "Too little, too late." No one is going to believe that a rush to cut rates is going to save us when banks are melting down. If it gives us a bounce, it is going to be sold very quickly.

We are going to have some opportunistic trading for very-short-term traders, but for anyone with a longer-term time frame, my advice remains the same: Stand aside and don't try to anticipate a bottom. There will be plenty of time to buy after the market starts to act better.

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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.