Former Fed chairman Greenspan was grilled in Washington a few days ago and admitted that he “doesn’t fully understand why it happened” in regards to the credit crisis.

Hmm, after 19 years at the helm of the Fed, you better know why things are happening, in my opinion, especially if you were part of the cause. Take a look at this video:

I’ll be leaving Germany in a few hours and will be back at my office in Southern California by Wednesday carrying the usual jet lag with me. Because of the way my return flights are scheduled, I may not me able to post for a day or two. I hope to catch up quickly.

With the markets having severely destroyed buy-and-hold portfolios over the past four months, I have received many emails from those who stubbornly have held on to positions mainly due to ignorance or in many cases bad advice from you know who.

Many investment advice columnists are now saying that this would not be a good time to sell because of the sharp drop we have experienced. Sure, if you’ve stayed on this bucking bronco with your entire portfolio, you are probably angry and disgusted when reviewing your monthly statements. And you’re right to feel that way.

But the market is at this level whether you like it or not. While everyone is trying to figure out whether we have reached bottom, or are close to it, you probably live on the hope that all is well as soon as the trend turns. And that’s the rub. There is no way of knowing whether any rebound will be the real thing or another head fake.

So, what’s a buy-and-holder to do? First, I hope you learned your lesson but more importantly, besides the losses, it’s the lack of a plan that keeps you in this uncertain position wondering what to do next.

Be aware that there is no perfect solution. You dug yourself a hole, and the first thing you need to do is to stop digging. How? Have a plan how to deal with whatever the market throws at you. If I were in a fully invested position now, or was holding on to some losing mutual funds, here’s what I would do to stop the bleeding:

I would sell 50% of all my positions and put a 5% sell stop under the balance.

As I said, it’s not a perfect plan, but it’s a plan nonetheless. If the markets rally from here, then you will still participate with 50% of your assets. If the bottom drops out, you’ll be glad you sold 50% and only have a 5% risk factor on the balance.

Emotionally, this will give you some means of control over the circus on Wall Street. Think about it for a moment. Having a plan to deal with the vagaries of the market place no matter what happens will put you in charge, which is the way it should be.

And finally, never ever listen to anybody promoting fully diversified buy-and-hold portfolios without the use of any sell discipline. The price for ignorance is simply too high.

Bear market avoidance is something I have written about during the last disaster in 2002 and nothing has changed; except the bear has gotten more vicious this time around and losses for many have already exceeded those of the 2000-2002 period.

A few days ago, I was pondering President Bush’s announcement of setting up a summit meeting with some 20 heads of various countries to discuss the credit crisis and, I suppose, come up with ideas as to how to avoid a repetition of similar events in the future.

I tried to find some sensible reasoning as to why you would want to gather up a bunch of people who were clueless about the credit crisis, never saw it coming and, in some cases, still refused to acknowledge it until it was too obvious to ignore.

Mish at Global Economics wrote a great post titled “Bush to host summit of losers,” which I intended to write, but Mish simply beat me to it and probably did a better job than I would have. Here are some highlights:

Instead of holding a summit of losers, why not hold a summit for those who saw the mess coming and are far more likely to know what to do than those who did not see this mess coming.

Instead, I fear we are going to see a conference of losers, sponsored by a loser, with losing solutions to the problem.

There you have it. Putting together a meeting of those qualified to talk about it is one of the simpler and obvious solutions which, unfortunately, is often ignored. Just as the credit crises accelerated a few weeks ago, news reports showed that none of the 400 top economists in this country had any input, but major decisions were proposed and made by those not necessarily qualified to make them.

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

Sharp losses by all major indexes contributed to the further destruction of Buy-and-Hold portfolios.

Our Trend Tracking Index (TTI) for domestic funds/ETFs remains below its trend line (red) by -18.18% thereby confirming the current bear market trend.



The international index now remains -29.14% below its own trend line, keeping us on the sidelines.

Big and ugly is the only way to describe yesterday’s market fall in which the widely followed S&P; 500 index fell 6.1% to its lowest level in five years.

This bear has more muscle and momentum than many expected, which is reflected by the simple fact that the S&P; has now lost almost 32% since our domestic sell signal was generated effective 6/23/08. That’s in only four months!

Despite clear evidence of a bear market, some simply can’t make a 100% commitment to the fact that staying on the sidelines is a wise thing to do. I was reminded of that as I read an article by Merrill’s strategist Richard Bernstein titled “New bull market nowhere in sight.”

It’s not a worthwhile read but the bottom-line is that he talks out of both sides of his mouth. According to him, there is no bull market in sight for years yet he favors having portfolio exposure to stocks of 50%.

Huh? If that is confusing to you, it makes perfect sense to me. If he would promote a 100% cash position, he’d be digging his own grave. What then would Merrill’s commissioned army of thousands of hungry sales people sell? This way, they still have a reason to call you and try to sell you stocks that are heading south or structure worthless fully diversified portfolios.

I can see why this man is Merrill’s strategist…

Here’s another tidbit of an embarrassing PR disaster that happened yesterday and did not influence the markets positively. At a congressional hearing, the top brass of the nation’s bond-rating companies struggled to explain away e-mails that said the agencies would give anything a decent rating if the price was right. One Standard & Poor’s analyst told a colleague the company would rate a deal even if it had been “structured by cows.”

This underscores the absolute uselessness of ratings companies as Mish over at Global EconomicTrends has been mentioning for over a year.

Every time the market makes a new low, you hear someone declaring a bottom followed by some wild explanation as to why a turn-around to the upside is imminent and good times are lurking around the corner.

Furthermore, opinions abound why this very moment in time would be a good one to pick up a stock that is considered cheap given historical data. While this kind of bottom picking may work during temporary reversals in a bull market, different rules apply when the bear strikes with full force.

Many in the investment world (including so called professionals) haven’t caught on to that fact and are following bullish strategies while getting their head handed to them on a silver platter. There is a penalty for ignorance, and it usually manifests itself in the form of a severe portfolio haircut. The funny thing about that is that the bear does not discriminate and wreaks havoc on $50k portfolios with the same force as it does with those in the range of billions of dollars.

I was reminded of that when I read billionaire Kirk Kerkorian’s latest clash with brutal reality when one of his investments in Ford so far ended up with a loss of some $700 million in only four months.

MSN Money reported it as follows:

Kerkorian’s Tracinda Corp. bought 100 million shares of Ford in April at $6.91 a share. He bought another 20 million shares at $8.50 and added 22 million shares on top of that at $6.54. Total investment: $1.007 billion.

But at least he could get a credit line.

These numbers add up to mind boggling losses. I think Mr. Kerkorioan and his team need a lesson in simple investment basics how one can protect himself from devastating losses via sell stops or simple trend following.

Otherwise, why on earth would you still hold on to an investment like MGM that has lost 85% over the past year? Take a look at the chart:

Now tell me, if you’ve been following trends for a while, at what point would you have sold? High 70s or thereabouts would not have been too difficult a point to detect a directional change at.

As this bear trend progresses, you will find more stories like these where brand name investors will give back billions of their assets by simply betting on the wrong horse or being way too early. Granted, there is always a chance that via random luck someone may hit a home run, but that will have nothing to do with investing but everything with gambling.

Trends will eventually reverse again and for you to successfully grow your portfolio, you don’t need to be in at the exact bottom. You’ll be better off waiting for a real bottom to form before committing your money so that the odds of a continued rally are stacked in your favor.