Now to address a few pressing questions on investors’ minds.

I’ve received many questions that basically say, “I never sold a few months ago, and now I’m holding a bunch of stocks at big losses.  What should I do?”

The fact is, I don’t have a great answer for you.  But here’s what I advise.

First, you should respect the weakness of the market and your stocks by selling something.  Just sitting there like a deer in headlights is not a strategy.  I’m not saying you should sell everything, but you might sell one-quarter of your holdings, or maybe two or three out of 10 stocks, right here, just to take some pressure off.

Then try to piece out of the rest of your stocks on any bounces.  Many of the worst, most beaten-down groups can bounce strongly, but if they do, you shouldn’t get greedy.  Try to sell out of another chunk after a bounce of a couple of days, and repeat.  You want to get out of your broken stocks, and, eventually, get into the new leaders of the next bull market.

On that note, I heard a question today that asked, “How do you know there’s going to be another bull market?”

My answer:  There is always another bull market.  That’s the great thing about capitalism–there are still millions of people out there employed, working, growing existing businesses and starting new businesses.  Believe it or not, many sectors are doing just fine these days, and we expect many more to do well once the current malaise passes.

Yes, it will pass, just as the Orange County, California, crisis passed in 1994, and the Russian ruble/Long-Term Capital Management crisis passed in 1998, and the tight money crisis passed in 1982, and so on.  The country and economy will get through this in good shape, and when a new bull market begins, there are going to be plenty of leading stocks to buy.

Lastly, I received one question just this morning that asked, “Why didn’t you just sell everything when the market turned negative [according our indicators] in mid- to late-June?”

My answer is simple, but it has broad implications.  Over the long term, selling everything when the market breaks down isn’t the worst idea, but if you do, you’re going to sell out of many big winners early on in their advances.  We would have sold all our First Solar (FSLR), Crocs (CROX), XM Satellite Radio (XMSR), you name it, just a few months into what turned out to be yearlong upmoves.  And thus, our results would have suffered.

Of course, this time it would have been great to sell everything in June (heck … maybe even sell short, too!).  But that gets to my larger point–don’t assume the future is going to be just like the immediate past.  Too many investors look at the most recent experience, and believe the next five events (in this example, the next five sell signals) will be similar.  That is not how the market works.

Instead, realize that you want a system that works for you over the long run … not something that hits it out of the park in 2008, but misses the mark entirely in 2009.  I’ve had the Cabot Market Letter’s Model Portfolio at least two-thirds in cash since early July, which is quite defensive in my book.  Obviously, it would have been better to be 100% cash, but, if I did that, does that mean I would become 100% invested on every buy signal?  That would produce a ton of choppiness and losses, which I’m not eager to embrace.

Bottom line, remember to take a step back when evaluating your methods, and ask yourself, “How are they going to do, not just today, but in bull, bear and sideways markets during the next five years?”