First, let me point out the folly of listening to the experts. With an amazing grasp of the obvious and an uncanny ability to predict the past, they can always be counted upon to hop on whatever bandwagon the market is running at the time. They predicted doom and gloom just as the market bottomed out with its "half off sale" and, after the surge, are puffing their chests up with bullishness. Sure, bear markets suck, and are painful, but true investors didn't give into the pain. Speculators, on the other hand, ran for the hills.
Though we are coming off the worst ten year period of the stock market since the great depression, a rebalanced 60 percent stock, 40 percent bond portfolio, rebalanced annually, racked up 36 percent through 2008. That rebalancing, however, meant we had to clench our jaw and sell when the market was high and the experts had new economic paradigms (cash doesn't matter and real estate could never decline). It also meant we had to be buying when the experts were telling you to get out.
I believe the death of capitalism was announced just a bit prematurely, and those buying when the market was down were rewarded. Rebalancing last March was incredibly simple but not very easy. It also doesn't work every year, but does work over time.
In early March, I advised people to buy not because I knew the market was about to recover but rather because it was having a half off sale. Today, rebalancing dictates that we have to sell some of our stock portfolio even though we don't feel like it.
So while I feel great about the market recovery, my advice to myself and others is to sell to get back to a target asset allocation. As Warren Buffett says, "be fearful when others are greedy and greedy when others are fearful." Wall Street greed has risen again like a phoenix, and I'm willing to admit that I'm not immune to that greed. It's not like you can get a shot for it like the Swine Flu. Rebalancing, however, is the closest thing to it and the only technique I know that keeps me following Warren Buffet's advice. Not doing so leaves us following the herd and sometimes, like back in March, it's a herd of lemmings.