It’s not complicated, folks. Focus on the dizzy boy, or the pickle roller, better yet, the precocious girl. Imagine, is she really worried about werewolves? Naw, she’ll roll with the punches. You should too.

Investing is not really complicated. Nor are your investment strategies that complicated. Limited yes. To four strategies. But when the market peaks, the bubble bursts, when you see it crash a couple thousand points, when you wake up to another recession and our clueless politicians are conned into bankrupting taxpayers again, bailing out Wall Street banks, again, and you’re wondering about your strategies, again ... remember, “it’s not that complicated.”

You’ve been down this road before. This is the third time in this 21st century. You should be used to it by now. First the bear/recession after the 2000 dot-com crash dragged on for 30 very long, agonizing months, far longer than the nine-month average. Then the 2007-2009 bear recession also got agonizingly longer than usual.

Now the current bull is four years old, ancient by historical averages. So a new bear crash is a no-brainer.

Now what? Think like a 5-year-old kid ... it’s not really that complicated

Seriously, you must be used to these painful cycles that Wall Street’s too-dumb-to-fail bankers and Washington’s dumb-and-dumber politicians keep subjecting American investors to. It’s not really that complicated. Our so-called leaders really don’t know what they’re doing. But get this, you do in fact know what’s best for you.

So let’s stop kidding ourselves, folks. Get real, this bull’s ready to do the pickle roll in the pasture. Think of the dizzy boy. And that precocious fearless little girl sitting in the small chair in kindergarten. Crashes? Bear market? Recession? They’re like her little fears of being bitten by a werewolf. She’d rather be a human: “It’s not complicated.”

You’d rather be a human, a fearless investor, not turned into a werewolf like a Wall Street banker or Washington politicians. You know you only have four uncomplicated strategies.

So here’s a quick review. Seriously, you already know all four choices ... it’s not really that complicated, admit it, pick one, roll with it, do what feels right for you.

1: Cash out (but only if you’re super savvy)

First big choice: Should you cash out, lock in gains, then wait patiently until prices bottom to buy bargains? Sounds great. For guys like Buffett. The Dow lost 4,436 points in 2000-2002. I remember getting hundreds of responses to a column about that crash. One investor hit the nail on the head: America’s biggest problem is our totally out-of-control debt, and it just keeps getting worse:

“They all fall into the category of debt: We’re living beyond our means, spending more than we take in and borrowing to make up the difference.” It’s not complicated. Simple as that, we’re our own worst enemy, and we keep sinking deeper as Washington borrows $1 trillion new debt every year to finance out-of-control spending.

For a long time indecisive readers have been asking the obvious, like the kids in that kindergarten: “If you’re right about a crash coming, Paul, when do I act on it?” Back in 1999 one told me “I thought of moving my 401(k) to bonds. Didn’t. Lost 40-50%. Ouch!”

The signals were so obvious. In early 2000 as the dot-com market peaked, too many absurd 100%-plus mutual fund returns and sky-high P/E’s screaming, “Sell, Sell!” Paul Erdman, a well-respected MarketWatch economist actually did dump his stocks. But few listened. His fixed-incomes returned roughly 10% annually during the 30-month bear, while the S&P 500 crashed into bear market with losses of $8 trillion.

2: Cash in (day trading, double down, shorts, puts, calls, action!)

Successful traders are a special breed unto themselves. Fortunately, a majority of America’s 95 million Main Street investors figured out long ago that active trading really is a loser’s game for average investors with full-time jobs.

Why? They tried, lost and read studies like the ones by finance professors Terry Odean and Brad Barber and their seven-year study of 66,400 Wall Street brokerage accounts.

Their bottom line: “The more you trade the less you earn.” Buy-and-hold investors in their research turned over their portfolios just 2% a year. Active traders churned their portfolios an average of 258% annually, but their net returns were a third less than their buy-and-hold competition. One-third less. And that’s before deducting “opportunity costs” and the added stress many traders complain of.

3: Sit tight, do nothing and ride out the storm

Yes, do nothing: Seriously, it’s not that complicated if you already have a well-diversified portfolio of stocks or one of our Lazy Portfolios of no-load index funds. Most don’t. The Ted Aronson’s Lazy Portfolio has averaged almost 10% annually the past decade, none less than 8% annually. When I asked Aronson about selling before a coming bear, he warned:

“For good reasons and bad, I’d hold tight. The good include my faith in capitalism and its ability to weather a storm, even one of biblical proportions. The bad reason is, I have no faith in my ability to time this sort of thing. Even if I got out in time, I probably wouldn’t be able to correctly time getting back in!”

Warning, trying to time the market is a dangerous fool’s game, and that’s from a guy who manages $21 billion.

4: Start building your own Lazy Portfolio today!

Wall Street, fund managers and the brokers have America’s 95 million Main Street investors trained like little puppy dogs, brainwashed to focus narrowly on their tips and hot stocks. These insiders get rich on “the action,” all the buying, selling, trading; or charging you hefty annual fees for baby-sitting your portfolio.

Yes, it is time to build your own Lazy Portfolio. It’s not complicated to see why their time has come: For decades Vanguard founder Jack Bogle has been warning that active funds skim and pocket a third off the top of your returns.

Now InvestmentNews reports that America’s second largest pension funds, CalPERS, the $255 billion California Public Employees Retirement System that’s already half in passive portfolio strategies exactly like our Lazy Portfolios, is considering going all in 100% passive.

The story behind the Coffeehouse Portfolio is a pitch-perfect argument for creating your own Lazy Portfolio, today, before the next crash. Back in the red-hot go-go days of the late 1990s Bill Schultheis, a 13-year Smith Barney, broker quit and wrote a best-seller, “The Coffeehouse Investor,” for people who wanted solid returns “without spending one ounce of energy” playing the market.

Unlike Erdman, Schultheis didn’t cash out, go all-bonds and just wait. Instead, he put just 40% in bonds, creating a well-diversified portfolio with 10% in the other categories. His “Coffeehouse philosophy” is so darn uncomplicated, just three principles: Build a well-diversified portfolio, own the entire market with low-cost, no-load index funds and develop a long-term financial plan and save regularly.

A bold move! You bet: Because back in 1999 over 100 mutual funds were delivering 100%-plus returns. And their investors were expecting to retire rich (and early!), thanks to those skyrocketing dot-com returns. Wall Street laughed at Schultheis “wasting” 40% of his money on low-return bond funds in his lazy “Coffeehouse Portfolio.”

But the laughing stopped during the 2000-2002 bear recession. His portfolio beat the S&P 500 by 15 percentage point all three bear years, with no rebalancing, no trading, no tinkering with allocations. Meanwhile, hundreds of technology companies went bankrupt, Nasdaq dropped 80%, and stocks lost $8 trillion in a 30-month recession.

So what’s your strategy? Think of the dizzy boy having fun. The pickle roller. The fearless little girl sitting in a small chair in kindergarten, rolling her eyes. Crashes? Bear markets? Recession?

You already know you have only four very uncomplicated alternative strategies for any bear recession. And the secret is out: You also know which of the four choices is yours ... it’s not really that complicated, admit it, decide, go with it ... do what feels right, for you.’

Paul B. Farrell is a MarketWatch columnist based in San Luis Obispo, Calif. Follow him on Twitter @MKTWFarrell.

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The Handy Investors Crash Loss Calculator
By Paul B. Farrell, MarketWatch

SAN LUIS OBISPO, Calif. (MarketWatch) — ‘How much will you lose this time around? Four years ago, on March 30, 2009, our column headline announced: “6 reasons I’m calling a bottom and a new bull.”

The Dow fell from 14,164. Hit bottom at 6,547. And Wall Street lost over $10 trillion of America’s retirement market cap. You lost lots. But it’s back up more than 100% since. We forget.

Time for another crash? Oh yes. Remember: Investors Business Daily’s publisher, Bill O’Neil, wrote in his classic, “How to Make Money in Stocks”: “During the last 50 years, we have had 12 bull markets and 11 bear markets … The bull markets averaged going up about 100% and the bear markets, on the average, declined 25% to 30%.” And “the typical bull market lasted 3.75 years and the classic bear market lingered only nine months.”

Today’s bull is over four years old, in dangerous territory.

Yes, you are facing an aging bull. Ready for pasture. But Wall Street’s still gambling with your money. Remember, Wall Street casinos have already lost roughly $10 trillion twice this century. Twice. And soon Wall Street will do it again.

But exactly when? Here’s how to figure “exactly” when. In his classic, “Stocks for the Long Run,” economist Jeremy Siegel studied all the “big market moves” between 1801 and 2001. Two centuries of data. Conclusion: 75% of the time there’s no rational explanation for “big moves” in stock, not up, not down.

So stop asking, maybe some technician, quant or high-frequency trader can predict short-term swings. But the “big market moves?” Never.

So “exactly” when? America’s top experts are warning us — it’ll happen before year-end. That’s “exactly” when. Why? It’s obvious. By year-end 2013 our aging bull will be 4 ½ years old, well past Bill O’Neil’s “average” 3.75 years for a bear drop putting a bull out to pasture.

So any rational investor would have to conclude that Mr. Market — as Warren Buffett’s mentor Benjamin Graham called the stock market in his classic “The Intelligent Investor” — would know that a bear drop, a crash, meltdown, or something very painful is coming very soon. Indeed, could happen anytime, maybe even tomorrow, because this bull is old-old by Bill O’Neil’s basic calculations.

Mr. Market will soon lose $10 trillion of your money, repeating 2008 and 2000

So the real question is not when, nor if, but how much will you personally lose in this third crash of the 21st century? Ask yourself: How would a rational investor estimate losses? Simple: a rational investor would logically estimate that Mr. Market could easily drop around 50%, again.

Another way of saying it is that Mr. Market’s latest roller-coaster ride will cost today’s Main Street American investors a new loss of another $10 trillion in market cap. Why? Because the Dow will loses half its value, crashing from today’s roughly 14,400 to 7,200.

That’s a reasonable conclusion by a rational investor, using the Graham-Buffett calculator logic on today’s Mr. Market. Remember: the Dow went all the way down to 7,286 in 2002 after the dot-com crash. Then crashed even deeper to 6,547 in 2009 after the Wall Street credit meltdown.

Handy-Dandy Investors Crash Loss Calculator: 25 portfolio killers

Here’s our little behavioral-economics calculator to help you figure out whether you’ll lose 50% when Mr. Market comes crashing again.

Quickly scan through the following list of common investor biases and bad habits. Don’t stop to think rationally about any one. Just keep tabs on roughly how many of the 25 fit some investment decisions you made during the dot-com era and in the years leading up to the recent bank credit meltdown.

And do it very fast. Maybe five seconds or so each. When you finish your scanning and have your number (even if it’s just a rough estimate like 12 of the 25) then we’ll go to the last step in our Handy-Dandy Investors Loss Calculator:

Overconfidence bias: You love trading and gambling. You pay little attention to the fees, commissions and taxes, because your know you’ll score big.

Blinders: Investors often stereotype certain companies, stocks and funds as “winners” or “losers” (Dell? Apple?), often missing turning points signaling a change in company fortunes, opportunities and reversals.

Heroics: Irrational investors tend to overestimate their stock-picking abilities, underestimate Mr. Market. Then later exaggerate their successes, talk about the one that got away.

Denial: Once locked in, irrational investors hate admitting they’ve made a bad decision. It’s an ego thing. So they hang on to losers, even refuse to sell losers. It’s un-American. Or means you’re not as manly or as smart as you thought.

Attachment bias : You fall in love with “special” stocks. You exaggerate virtues, downplay problems and then hold on too long.

Extremism bias: Irrational investors have trouble assessing risk, often bet big, and lose big. Probable events become certain. Unlikely events become impossible. So you’re likely to miscalculate your risks.

Anchors: In your mind you tend lock in price targets, like a hundred-buck stock or Dow 15,000, then minimize any data that suggests you’re wrong.

Ownership bias: Once purchased, you value what’s yours even higher, like overvaluing your home. That blinds you to the real value, adds to your losses.

Herd mentality: For all the talk about macho individuality, the truth is, most investors don’t think for themselves and tend to follow the crowd, or blindly track some trend.

Getting-even bias: You lose, then you try to break even taking extra risk, doubling-down. You get overanxious, overreact, and you lose more.

Small-numbers bias: Making decisions on limited data that’s incomplete and likely exaggerated.

Loss aversion: Many cautious people tend to avoid losses more than seek gains. That fear keeps investors out of the market too long, and in “safe” money markets.

Pride: You hate selling losers, hate admitting error. You have a no-talk rule.

Risk averse: You take too little risk after a big loss or a losing streak, get too conservative, don’t trust yourself, and miss opportunities for higher returns.

Myopic bias: You think recent data’s more important than older information. So you may pull back after a losing streak, or ride a winning streak till you lose it.

Cognitive dissonance: You filter out bad news and tend to ignore and discard new information that conflicts with your biases, preconceptions and belief system.

Bandwagon: You disregard fundamentals. You think you understand “momentum.” You conclude that “so many” followers can’t possibly be wrong.

Confirmation: You’re not only critical of any news that contradicts your beliefs, you blindly accept any data that confirms beliefs.

Rationalization: You are superlogical and can marshal lots of evidence to back up whatever you first decide to buy, even if it’s based on limited logic and data.

Anchoring bias: You rely too much on readily available data, just because it’s available, even when you know it could be faulty.

House money: You treat winnings as if they belong to the house or casino. Then you take bigger risks, giving it all back, and then some.

Disposition effect: You tend to lock in gains and hang onto losses, selling shares in an up market, hanging onto losers too long, similar to loss aversion.

Outcome bias: You judge your decisions on results rather than the context when the decision was made. That’ll result in misleading you the next time.

Sunk costs bias: You treat money already invested in a stock as more valuable than future opportunities, so you often hang on rather than sell and reinvest.

Perfect behavioral storm: Separately, each bias is bad enough. Combined, they become bubbles, set you and wipe you out. Either way, quants and behaviorists can easily manipulate you into what they want, blowing bubbles and popping them without you ever knowing what’s happening … manipulating you like a mindless puppet.

OK, you probably have a rough count, and likely not that exact. No problem. Let’s say, for example, you estimate that out of this list of 25 known investors biases, you’ve made investment decisions that were irrationally based on 10 of these bad habits and biases.

So here’s how you can use the Handy-Dandy Investors Crash Loss Calculator to figure your losses in the next crash. Very simple to estimate: If you estimate you exhibited 10 of the 25 bad habits and biases in the past, that suggests a portfolio drop of 40%. And if Mr. Market only goes down 50%, like it did in the 2000 crash and again in the 2008 meltdown, your losses would be between 20% and 40% of your portfolio’s total value.

Of course the real value of this exercise is not the numbers game. Besides, if you’re gaming the system, it may be impossible to stop. But if you’re ready, then this exercise makes you aware of the fact that Mr. Market really is overdue a crash.

And more importantly, if you lose money again, it’s your fault. Yes, the problem is yours, it’s all in your head, your own behavioral biases, quirks, blind spots and bad habits, and not Mr. Market’s problem. He’s just doing what Ben Graham and Warren Buffett tell us he always does.

So, get your behavioral act together and prepare for the crash that’s dead ahead, with no biases or bad habits. ‘

4 strategies for the coming crash

Paul B. Farrell Commentary: Even a kid in a TV commercial can figure out which solution is best.

The Handy Investors Crash Loss Calculator

The only 4 strategies to use in the next crash

Commentary: Even 5-year-old Dizzy Boy can pick the right one

Werewolves of Wall Street, Washington will soon ‘turn’ America

Now what? Think like a 5-year-old kid ... it’s not really that complicated

1: Cash out (but only if you’re super savvy)

2: Cash in (day trading, double down, shorts, puts, calls, action!)

3: Sit tight, do nothing and ride out the storm

4: Start building your own Lazy Portfolio today!

Mr. Market will soon lose $10 trillion of your money, repeating 2008 and 2000

Handy-Dandy Investors Crash Loss Calculator: 25 portfolio killers