Bull markets can be very forgiving. As Doug Casey once put it, when the wind blows hard enough even turkeys can fly. Bear markets are exactly the opposite. In bear markets even good companies decline substantially in price while weaker companies usually go belly-up. I prefer bear markets to bull markets because they make it much easier to make rational decisions.

People get suckered into buying companies and assets at over-inflated prices during bull markets because they believe the bull market will last for ever. That’s what makes bull markets so dangerous, perhaps even more dangerous than bear markets. Bull markets are good for selling, not buying; bear markets are good for buying. Like most people, I wish I had sold more during the bull market than I did. So what? No one can time the beginning and end of market cycles, which means we have to do the best we can under the circumstances. There is no room for remorse or denial: we are in a bear market and the stock prices are what they are. Here is what I am doing about it.

I always make sure that my portfolio is set up for a win-win outcome. The portion of stocks in my portfolio is large enough so that if the market turns up, and share prices increase, I would be very happy. On the other hand, I also have enough cash from prior liquidations so that if prices remain depressed, or decline further, I could average down on some positions and acquire new positions at very attractive prices. A win-win position requires both cash and stock; if you don’t have any cash left you have a problem, but read on.

Bear markets are wonderful for cleaning and upgrading a portfolio. What you paid for a stock doesn’t matter: the market doesn’t care. If you bought a stock for $3 and it’s now $0.30 you have already lost your money -- denying it won’t help. It makes no sense to keep a stock just because the price is down and you hope it will rebound. Ask yourself whether you would buy that stock today at its current price if you had cash instead. If the answer is no, you should probably ask yourself if you really prefer holding the stock to having the cash. With cash you have the option of buying a different, perhaps better company.

If you hold 300,000 shares of a company that’s trading for $0.10 you could buy 100,000 shares of another company that’s trading for $0.30. Determine which of the two companies is better managed, has the highest probability of future success and has the strongest balance sheet. Which one would you rather own? If it’s the one you currently own, great; but if you would rather own the other one, you know what to do.

The same rationale holds for selling companies to raise cash because with that cash you could buy potentially better companies that have also fallen in price. It is imperative that you remove your emotions from the decision making process. Forget what you paid for a particular stock or what it was once worth. Think hard about which companies you really want to own.

I pay a lot of attention to how well I sleep at night. If I go to bed and worry that I own too much of a particular stock I sell some of it the very next day. Similarly, if I find myself lying in bed thinking that I really would like to own more of a company, I go out and buy some. I keep adjusting my portfolio to maximize the amount of quality sleep I get every night.

When gold hit $1,000 an ounce I was lying awake worrying about it. My gold model at the time was telling me that gold was not really over-valued and that it should be rising in price going forward, but it still bothered me. When Steven Saville challenged my use of M3 I lay awake at night thinking about the nature of money, and how best to quantify, calculate and analyze the money supply. I had to answer those questions, and when I eventually created a whole new measure of the money supply and updated the gold model I felt better. But the new model yielded a substantially lower gold price than the old one so I liquidated my gold futures contracts and only after that did I sleep well again. I’m glad I did -- the gold price fell soon afterwards.

I always try to make the best decisions I can with the information I have available. If it turns out I made a mistake, or the information was wrong, I don’t have any remorse. How can I have remorse if I did the best I could? But that also means I act when conditions change, or when I realize I’ve made a mistake. Inaction is reason for remorse.

People act emotionally because they don’t have sufficient knowledge or information to act rationally. You have to know why you own a particular stock or investment. You have to be able to do your investment research yourself, or you need to rely on someone else. If you rely on someone else, please make sure you know the person you are relying on.

If you own a bunch of stocks because someone on a podium somewhere mentioned them, how are you going to know if you should hold, sell, or buy more? If you take your advice from a broker, make sure you know and trust your broker. If you follow newsletter recommendations, make sure you know and trust the editor of the newsletter. If you don’t know why you own a certain stock, perhaps investing is not for you. When I say you should know your broker, investment advisor or newsletter editor, I don’t just mean know his name or be able to recognize his face -- you need to research and analyze your investment advisor as you would research and analyze an investment. Since you’re not going to analyze the individual investments you should really know who you’re taking advice from and what qualifies him or her to give advice.

I think we are about one year into this bear market and there is nothing on the horizon that makes me believe we are anywhere near the end, or even the bottom of this bear market. I am personally preparing for a bear market that could last anywhere from three to ten years. There is no need to rush in and buy. Wait for opportunities to come to you. Regardless of whether you do your own research or follow the advice of a broker or newsletter writer, take your time, and buy only the most compelling investments you find or hear about. Stocks are much, much less expensive today than they were twelve to eighteen months ago, but I suspect many of them are going even lower.

The foregoing is not a short-term forecast on specific stocks; it’s a general market comment. Several things can make individual stocks do well, such as a discovery, good exploration results or intelligent corporate activity. Also, it is possible that some stocks will decline far below their intrinsic value and will rebound just to become more reasonably priced again.

If you own a company and you are happy to see the share price decline because it means you can buy more, for less, then you probably own a good company and you’re probably sleeping quite well at night. I own several such companies and I have seen their share prices decline anywhere from 50% to 90%. I am now starting to selectively add to some of those positions at a fraction of what it would have cost me a year ago. I am, however, pacing myself because I think we’re going to have great opportunities to buy good companies at very low prices for a long time.

A few weeks ago Brent Cook outlined the reasons to buy Altius Minerals in his newsletter (www.explorationinsights.com) and I bought some. I know Altius very well, and probably didn’t need Brent to tell me I should buy it, but I mention Brent specifically because, unlike most newsletter writers, he’s not going to give you several new stock recommendations every month. When he does recommend a stock, you can be certain that he put considerable work and effort into it. I have relied on Brent’s research and opinion for over ten years and I have no reason to change that.

I am not going to be recommending stocks in this letter because I am not doing as much research on individual companies as I have to do if I wrote a stock letter. I am currently much more interested in understanding the macro economic environment and figuring out how to trade on “big picture” ideas. Looking at macro economic data helped me get out of gold before it fell, for example. I also shorted oil futures after I wrote my last letter on that subject and I hope to be able to come up with more investment ideas along the way.