“Successful investing,” in the words of British economist John Maynard Keynes, “is anticipating the anticipations of others.” In this vein, the market hits bottom when most people think that most other people think it has hit bottom. Only then, most people start to buy stocks, creating a self-fulfilling prophecy.

If most people think the market should hit bottom, but they also think that most other people don’t think that, they won’t buy stocks and the market will continue to drop. So, predicting when a market will hit bottom is a mind game on a grand scale. If there are people who are good at that, I am certainly not one of them.

Since President Bush declared that if the Congress does not give Secretary Paulson the $700 billion blank check, “the sucker could go down!” the talks of another Great Depression have filled the airwaves.

So how much does today resemble the Great Depression that lasted from 1929 to 1933?

July 2008 marks the start of a bear market after all major market indices have fallen more than 20% from their most recently peaks. This article is part two of my three-part research on bear markets. In part one, I researched how long a bear market lasts. In this installment I ask this question: 

Which style fared the best in a one-year time frame after stocks have entered a bear market?  

In my last article, I explained why volatility does not measure risk. It’s an assertion by none other than Warren Buffet himself. I hope the historical data I used convincingly illustrated the point.

If volatility doesn’t measure risk, then what can we learn from it?

Confusing volatility and risk could cost you a bundle. Let’s take a look at returns on an investment of $1000 over 50 years from 1958-2007 in five asset classes.

• Small cap value: $3,750,000
• Small cap growth: $1,380,000
• Large cap value: $854,000
• Large cap growth: $130,000
• CD: $13,800

Isn’t it obvious which is the best long-term investment?

Jim Cramer made 185 bullish calls and 86 bearish calls during the Mad Money Lighting Round program in February 2007. 102 of his bullish calls and 50 of his bearish calls turned out to be 'right' calls. A right/wrong call is defined by the following criteria:

• Bullish: If a bullish call has a one year return higher than that of the S&P 500, it is a right call. If not, it’s a wrong call.

Investor sentiment is at its lowest since 1990 and second lowest since the American Association of Individual Investors [AAII] sentiment indicator began in 1987. On 2/7/08, the 8-week moving average bull/bear spread reached the low of -25% and has since hovered below -20%. What does it mean for investors that the bull/bear spread stands at -25%? And what is the bull/bear spread?

Are you bullish, bearish, or neutral?

3/17/2008 After Bear Stearns’ collapse, Jim Cramer: “I said the common stock was worthless on Friday.”

3/11/2008 Before Bear Stearns’ collapse, Jim Cramer: “Bear Stearns is fine … Bear Stearns is not in trouble. Don’t be silly … Don’t move your money.”

Chinese stocks are hot. Taiwanese stocks are not. That’s about to change.

Taiwan will hold its presidential election on March 20th. Barring an extraordinary electoral surprise, Ying-jeou Ma, the candidate from the pro-business and less China-averse KMT will win the election. (Currently Ying-jeou Ma is leading with 63% in Taiwan’s political futures market.)

From Jim Cramer:

What I'm saying is that there are bargains right now, there are stocks right now that if you're shrewd enough, you will be able to buy them at the opening today and I you'll make money in a year from now.

Last month, the Fed took a drastic step to cut rate twice by a total of 125 basis points. And with a drop of 225 basis points since last fall, what does this say about likely stock returns? Let’s look at the historical data.

Since 1950, the Fed cut more than 200 basis points 11 times in attempts to simulate a faltering economy. Economists believe it takes six months for the rate cuts to take effect which should last for as long as three years. Therefore I examined the one- and three-year returns of the S&P 500 Index and the Fama/French Small Cap Value benchmark portfolio for each rate-cut period.

We’re already in a recession. Or, that’s what the pundits say. They may well be right. But what will you do about it? Will you follow common wisdom and seek the relative safety of large cap stocks? After all, large cap stocks are safer— right?

That’s what I had thought too, until I studied the S&P 500 and the Fama/French Small Cap Value benchmark portfolio in all nine recessions going back to 1950.

In the three month period between Oct 19th, 2007 and Jan 18th, 2008, the S&P 500 (SPY) index fell 14.1% and the Russell 2000 Value Index (IWN) fell 19.5%. To understand what is likely to happen next, I studied the top 10 worst three-month-sell-offs since 1950. These sell-offs ranged between -13% to -30%. I found that in 8 out of the 10 occasions, the S&P 500 index rebounded by more than 20% in one year. Small Cap Value stocks did even better. The Fama & French Small Cap Value Index rallied more than 30% in one year in 8 out of the 10 occasions. In the other two occasions, it increased 6.6% and 24.1% respectively. (See Table below.)

A market sell-off is not a risk