1. WHAT TO DO ABOUT CURRENT LOSSES
When loses start piling up and the pain increases, you can "stay" the course and hope, you can sell everything and get out of the market, or you can "change" the course. If you don't know how, get your money under management with someone who can do it for you. Forget the "Safe Money" mailers and radio ads. You'll NEVER recover at that rate of speed.
A major truth I have learned over the years, no matter what the timeframe, is that the only thing that matters is the future. The past is like a picture on the wall. It just hangs there to remind you of what happened, but it can't be revised.
So also in the markets. If your present course is costing you, take your losses and make new decisions in cooperation with the present trend. In the larger scheme of your life, what you've lost doesn't matter as much as what you can make going forward.
Psychological Barrier: To many market participants, locking in losses by selling is "admission of failure," "eliminating a possible comeback" or "giving up and walking away with their head hanging." In fact, selling and locking in losses has zero impact on your account value. It is merely drawing an accounting line in the sand. It is a neutral event, although it does bring tax benefits for the current year inside of a taxable account. You have accumulated losses in the first place by not having managed your account with "stop-loss" orders which serve to limit losses. When an account is left to freely run it's course over time without management of it's positions, such as frequently happens in trust accounts and IRAs, losses build up gradually like a bucket with a leak. If you were using such a bucket, would you just let the bucket sit there until all the water runs out, pray for rain, or get a new bucket? Failure to "take losses" is equivalent to one of the first two choices. Actually selling and taking the losses is like getting a new bucket. You still have the same amount of water, but now there is no leak.
One you have stopped the leak, you are then in the position to assess the market and re-position yourself to go with the prevailing trend, whether with an entire market sector or with a new collection of individual stocks, for example. Reluctance to take losses means only one thing: Pride. You don't want to admit you were wrong. You are where you are because of your (or someone else's) past perspective. Why remain rigid about it when the current market trend is telling you something different?
2. LONG OR SHORT?
Why should you care? Whether your are long or short is not the right question. Rather ask, "Have I identified the trend and positioned my money in a way that will GROW in the current trend? Simple.
3. ADVISOR BLOCK
Whether banks, brokers, certified financial planners, CPAs, or major investment banks (which are now disappearing due to their faulty judgment), their recent advice has led your account values downstream. If you've done well in recent months, its because you took matters into your own hands and connected with the trend. "Advisors" or even "Money Managers" are generally afraid to buck the time-honored portfolio design of "BUY STOCK, BONDS AND CASH." They all sing the same song because of the regulatory concept of "client suitability." Suitability is based on an assessment of what a client can comfortably afford to LOSE. That general number determines how much of your money an advisor is willing to direct into a "non-traditional" portfolio. The rest will be steered into "traditional" long holdings, with everyone assuming that the market eventually will go UP over the long haul. Obviously, that has been the WORST way to invest since November 2007, and some would say "since 1994."
Remember, "traditional" means "that's the way we've always done it." "Traditional" also means "safe" for the advisor, but not necessarily (as you are seeing) safe for you. If you have been listening to the "traditional" talking heads, you are fighting the trend, taking huge losses and only you will be left holding the (empty) bag.
Most advisors can't help you unless market conditions match their copycat advice. They'll put you into traditional "long" variable annuities, mutual funds, bonds and stock every time because the risk to their own careers is the lowest with those financial vehicles on the "long" side of the market. Advisors work based on what they have to lose, not on what you have to gain. That's why your dependence upon them has proven to be disappointing.
4. MEDIA RELIANCE
A well-known market commentator (a PermaBull) has recently said online:
"I say it is no longer in the hands of the central banks. It is in the hands of rational people making rational decisions to get out before more institutions fail, more hedge funds liquidate, and still lower prices are upon us."
Like the professional advisors, he will not admit that "buy and hold" is not a cure-all, so he is just telling the world to "get out." He wants us to stop the bleeding here and wait until it's safe to go back in the water and be buyers again. I wrote him a lengthy letter recently asking why he doesn't educate the public about ways to make money on the way down. Two days later, he published an article saying "If I were to go short, here are examples of what I would do." And his examples were outstanding, but his emotions and history and public image prevented him from jumping the good ship "TRADITIONAL" and doing those very things with his own money. Amazing.
I have also seen that the media (not financial professionals at all) reflects the popular "advisor mentality" and serves it up to you regularly. Furthermore, when I observed that the trend had changed back in November 2007, I then wondered how long it would take the media to start talking about it using words such as "Bear," "Recession" and "Depression." As I expected, they were 6 months late to the party. No help there. And as expected, just today (11/17/08) a newsflash came out in which a major group of economists "pronounced" that the U.S. was officially in a "Recession" and that it is not expected to change until "sometime" after the first quarter of 2009. I can promise you that it will happen years, not months, after that. Our economy and country is so sick.
5. GOVERNMENT
As we have all painfully seen, "the government" (read "Congress") is self-serving, responsive to special interest groups who feed their campaign accounts, greedy and more than willing to dump millions into pet programs, known as "pork." Why we keep voting for people like that is also amazing. The government is good for serving up major bailouts for macro institutions controlled by the few who rake off major compensation, and then label it as some kind of national benevolence.. I don't know how else to describe it.
The manipulation of the tax code and the federal currency printing press are the government's primary tools to "adjust" what happens to us individually. The government will never bail out individuals. If you want to be "bailed out," you'll have to figure out ways to do it yourself. At least we have that freedom.
6. TRADITIONAL VS. CONTRARIAN
I know ten ways to make money in the markets that would be called "contrarian." "Contrarian" implies that which is opposed by the majority and is a negative, maverick or gunslinger mentality toward making money. "Traditional" implies afternoon teas, an ever-upward market condition and "acceptable" trading to cause markets to generally rise. One has a positive connotation while the other has a negative.
Ironically, anyone doing "traditional" buying in the current market condition would be the "contrarian." So the better question becomes, "Contrary to what?" It's "THE TREND," silly. To be a buyer (or holder of past purchases) today is "contrary" to the trend, otherwise known as "a bad decision." At this writing (11/17/08) the S&P and the DOW have fallen further than even I could anticipate. I am DEFINITELY GLAD that I have been and am SHORT in all of my accounts. I need some more buckets to catch all of it!
If someone now called me a contrarian, they would evidence a total lack of understanding. I have been trading WITH the trend, not contrary to it. So I need to coin a new label right here and now. My new label is
"TRENDITIONAL!"
Trenditional means that you are trading with the trend, not against it. That means that when the trend is UP, I'm a buyer. Or when the trend is DOWN, I'm a seller. But if I am currently a buyer and then become a seller, in order to make money with the downward trend, I have to sell TWICE, which means I have to sell something I don't own. You sell once to get rid of your longs and then you have to sell again to acquire your shorts. My new word "trenditional" means that you move from long to short and back again with the market. If you take just one side and stick with it through think and thin, your account value will vacillate with the changing market and you'll end up losing or breakeven, at best, for your trouble. You will find elsewhere on this site that I think "buy and hold," as a strategy, came to an end at the turn of the century (2000). From here on out, its going to be a trader's market, making a "trenditional" approach all the more necessary.
7. THE PATH BACK TO PROSPERITY
lFIND A TREND AND THEN TRADE IT.
8. CONCLUSION
It's very simple. I'm not suggesting that either long or short is the holy grail. I am saying that you should be emotionally neutral toward either trend and just do what is necessary to make money in either direction as the trend changes.
DON'T BE INTIMIDATED BY TERMINOLOGY... ANY OF IT. THINK AND THEN ACT IN A WAY THAT IS COMPATIBLE WITH YOUR OVSERVATIONS.
GCM HELPING YOU FROM EVERY DIRECTION 
