"If you have the urge to ruminate about your investments while listening to the surf rolling along the Orange County coast, use your laptop or palm pilot to order a copy of "If It Doesn't Go Up, Don't Buy It!" from Amazon.com. Written by Albert W. Thomas, a long time securities trader and financial columnist, the book explains the pitfalls of the "buy and hold" strategy advocated by many brokers.
As Al points out, big dips in the market can take years to fully rebound. Individual stocks that lose a large percentage of their value, as many of the Nasdaq tech stocks did during the last year, may never return to their earlier highs. According to Thomas, you should always have a predetermined "sell" position to get out of a falling stock without traumatic loss. You should also be prepared to go to an all cash position when the market as a whole shows clear signs of going south. "Preserve your capital" is one of his main mantras. That way, when the market does start to rebound, you are in a position to benefit from the solid, and sometimes spectacular, gains that typically follow a bear market.
The positive side of Thomas's philosophy of investing is a system of trading the best performing no-load mutual funds when the market is going up. I won't try to explain all the details but, in brief, the idea is this: use financial publications such as Investor's Business Daily or certain newsletters he names to pick the top performing mutual funds that don't charge you for buying or selling shares (IBD and the newsletters publish lists of the funds that have done best in the past three, six, nine and 12 months); invest all of your capital in all of these funds that are in the top 1% in terms of performance.
Review your portfolio every month. Sell any funds that have fallen out of the top tier and buy new funds that are moving up.
Thomas's system is a way for the average person to participate in the upward trend of the best parts of the market by investing securities picked and managed by the best managers while using diversity to reduce - not eliminate -risk. It doesn't take much time - an average of an hour a month, according to Thomas. And it yields big rewards in a market that is moving upward."