Every market period, just like the one we are in right now, has the silver lining of giving the experienced investor the very real chance of making a fortune. Conditions are perfect for the run of a lifetime.

Look in any direction and there are bargains. Stocks, commodities, even corporate bonds, after their recent run up, have started to drop off to the point where there are nice discounts again.

Options, usually the Vegas of investments, have had huge potential in the last few months. I have sold covered calls in the last two months that have given me returns as high as four to five percent per month.

Once again, though, the average Joe is being driven to inaction and all the wrong moves by information sources that seem to want to extend this period of economic bottom bouncing. Whether it is intentional or not, the outcome is always the same. Scare as many people as possible into never leaving the TV for fear they might miss the next bit of bad economic news, and sell them as many pickup trucks as you can in 60 seconds.

The press and media will give you no help in participating in this market opportunity. Bad news sells and they are selling their butts off.

Except for a few programs, Squawk Box being the best of the bunch, everything is negative and written for eighth graders on the “day late dollar short” theory of investing. Which means it’s useless for making money decisions.

Having pounded the table for the almost 20 years about this exact subject, I am doubtful this effort will make any more difference than the last 50 or 60, but I feel duty bound to try again.

The Golden Rules for Down Markets

Buy stocks when they are down. I didn’t say this information was earth shattering.

Stocks are way down right now, way down. Buying?

Look at the 30 stocks in the DOW and the S&P 100 stocks and pick the ones that are in businesses that have products we need, not want, no matter what the economy does. Also, look for ones at the lowest point of their 52-week range.

Now look at the 200-day moving average for each. Pick the ones where the price is way below the 200-day curve. Finally, look at their balance sheets and earnings estimates and pick the ten you think look the best.

At this point, it may begin to sink in that we are in the midst of a huge buying opportunity. You are beginning to see the light. Now, get up and turn off the TV, or at least turn down the volume. That will be the best thing you can do for your portfolio.

If the nameless talking heads are predicting really low bottoms, we have definitely bottomed.  If they are talking about it on TV, it has already happened.

Yes, we will test new bottoms. This is a reason to celebrate, not run and hide. We will probably bounce all over for the rest of 2008. This is called a buying opportunity for a reason, prices are low. Every new low should be like seeing the price of steak cut by another huge amount. Why do you think you have a freezer?

Our freezer is dollar cost averaging and small position sizes. Buy into the dips and don’t bet the house on anything. I said it was a buying opportunity, not a give away.

Keep your buys small and don’t chase upward price moves. The recent move in Treasuries is a perfect example of following the hot trend right to the poor house.

The market dumped and the institutions had to go for safety, treasuries. The news reported a huge move up in them and dutifully the sheep lined up and bought them at record highs.

This is the basis of the school of “buy high sell low portfolio management.”

Buy something other than just stocks. If the past year hasn’t taught you that the stock market is a very risky venture, then you have no business managing your own money.

You must own some stock no matter what your age. You also have to balance your portfolio with low risk investments to protect yourself form the sell off beast.

The formula is too easy, maybe that’s why everyone ignores it. I should charge you a couple thousand dollars for this and make you sit through several hours of CD’s to get to the point. Here it is free.

100 minus your age equals the percentage you should have in stock. (100 – 55 = 45) 45% in stock, 55% in bonds or other reduced risk investments. Not good at math, your age is the percentage you should have in bonds.

This balance will give you the opportunity to avoid a very poor retirement.

The bond idea has been ignored since the craziness of the mid-eighties drove us to money insanity. No top in sight, why not go for “the stock market lottery.” Only bowling teams from small towns in Maine ever hit the lottery. Get over it. Right now, I am making more money in corporate bonds than anything else.

Since October in The Bond Trader, I have taken capital gains as high as 90 percent. The potential in bonds right now is better than I have ever seen. The current interest yields are also great, six to eight percent is not unusual.

Bonds are not widely understood which is why many people avoid them. Their understanding stops at Savings Bonds and the thirty-year treasury. They aren’t difficult.

If you are over 50 you don’t have a choice, you have to have bonds in your portfolio. You don’t have the time to wait out another stock market collapse like this one, and there will be more.

While these two simple rules don’t begin to cover every possibility, they are enough to help you move from the frozen fear position to one where you can begin to act rather then react as we dig ourselves out of this most recent bubble burst.

Source: Making a Fortune