Avoiding Investing Mistakes I Made In 2002

The 07/08 bear market will test how much I learned from the bear market of 00/02. Here's a summary of what I did in 00/02 and what I'm doing now.

00/02
Action	Lesson Learned	07/08 Action
I continued to buy on dips, which worked until late 2001. However, in 2002, the market just kept going down, as did the stocks I owned.	Buy on dips only when the market is in a long term upward trend.	Using market indicators such as the ratio of new highs to new lows, I think I am better at recognizing a short term pause in a bull market versus a declining market. Currently, I believe we have a declining market.
Expensive stocks became cheaper and appeared to become value stocks. After going from over $100 to $10, it appeared that up was the only direction some of these stocks. Wrong! Many of these stocks proceeded to $1 or nothing.	Avoid value traps and make additional purchases after a clear reversal and uptrend has occurred.	I no longer dollar cost average positions that I have. If a stock goes down right after I buy, I continue to hold it, because I believe it is a good company. However, in case I'm wrong, I wait for it to resume an upward trend before buying more.
At the end of 2001, I didn't sell any losses to offset gains. I believed that the stocks would rise in 2002. Instead they declined further.	Losses often get bigger for a stock in a declining market.	In 2007, I sold all my losses that could offset taxable gains, and therefore, minimized my income tax.
At the end of 2002, I sold all the stocks in our personal accounts. As a result, we missed out on the 2003 market gains.	Always have some exposure to the stock market.	In 2008, I will continue hold the majority of our current investments, and occasionally sell small portions (e.g. less than 5%) during rallies to raise cash.

In the 00/02 bear market, my only investing strategies only involved owning stocks, not owning stocks or options. From 2003 to 2004, I experimented with shorting stocks, which focused on companies with poor business performances and extended declines in their price. This approach to shorting had enough success that I plan to use it again in 2008.

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This is not financial or investment advice. Please consult a professional advisor.

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