When to Fold 'em

This week's Hussman,

"[E]ven a run-of-the-mill bear market decline wipes out more than half of the preceding bull market advance. I doubt that the present instance will be different. Indeed, cyclical bear market declines that occur in the context of secular bear markets average a market loss of about 39%, wiping out about 80% of the prior bull market advance. We presently estimate a nominal total return for the S&P 500 of just 3.2% annually over the coming decade. It is not pessimism, but optimism – and optimism born of a century of evidence – that we expect stocks to provide more favorable opportunities for investment over the completion of this cycle."

I was noticing how Longleaf Partners gave back all of their gains from 2000-2007 - and then some! - in a period of about a year. I use them as an example because they are relatively smart - one of the largest holders of Chesapeake, for example.

But doesn't matter how good your security selection is if you refuse to go to cash at opportune times (and are managing billions). The small investor (AUM<$100MM) has the ability to make more market agnostic investments, and to hold large amounts of cash for extended periods of time.