How to Do When the Dow Hits 7,500

Talk about ironic ... I originally submitted this article to my editor on Aug. 29, after the Dow had fallen "all the way" to 11,500 -- but it never got published.

The plan was to take you back to 1996 -- when the Dow crossed the 6,000 mark for the first time ever -- to a Charlie Rose roundtable that included Jim Cramer and Motley Fool co-founders David and Tom Gardner.

Another crazy call by Cramer Back then, Cramer argued that the Dow would soar all the way to 7,500 -- despite the fact that it had already more than doubled in just over five years, and that even shares of behemoths like Procter & Gamble (NYSE: PG) and Coca-Cola (NYSE: KO) had risen more than 100% from their 1991 lows.

Meanwhile, David and Tom took a much different approach, telling viewers, "We don't care where the market is headed." They explained that they were focused on finding the best eight or nine stocks to grow your wealth over the long haul. Basically, they searched for stocks that:

Were underfollowed on Wall Street.
Had a net profit margin of at least 10%.
Had earnings and sales growth greater than 25%.
Had insider holdings of 15% or more.

I went on to show how, early on, this approach led them to America Online and Amazon.com (Nasdaq: AMZN), among others -- not to mention that it landed them on the covers of magazines from Fortune to Newsweek. But I also thought it fair to point out that it was hard not to get rich in that market.

After all, Cramer had been right on the money. The Dow soared to well over 9,000 in 1998 and reached a whopping 11,500 less than two years after that -- which is exactly where it stood on Aug. 29, 2008, when I submitted my article.

Could my timing be any worse? Sure, we were in the middle of a fierce bear market -- but I pointed out that of the 24 stocks that David and Tom recommended to their Stock Advisor subscribers during the last bear market ...

Twenty-three were (or had been sold) in positive territory.
Eleven had more than doubled.
Five were up more than 400%.

I even added, "I bring this up merely to illustrate that despite what all the talking heads on TV are telling you, you absolutely should be buying great companies right now -- while they are still selling at massive discounts."

I'd almost jokingly insinuated that the Dow could drop to 7,500 ... and then, within six weeks, we were a mere 200 points from seeing it do just that.

And here we are now -- thrilled to finally be above 8,000 again! But even after the recent rally, I’m still sitting on sizable losses in Apple (Nasdaq: AAPL) and AT&T (NYSE: T). And I'm left with the same questions that you probably have, like "have we finally seen the market bottom?" and "should I just sell everything and move on?"

After having been so thoroughly humbled by this market, I won't go so far as to suggest that you follow Buffett's lead to be greedy when others are fearful. And I won't even preach what my fellow Fools and I are practicing.

Instead, I'll simply share the advice that Tom Gardner recently gave us at our company-wide "huddle" ...

How you can turn losses into a huge win Tom pointed out that when things are going well, most of us spend all of our time high-fiving and celebrating, whereas when things go sour, we turn to sulking, worrying, and even panicking.

Meanwhile, when the going gets tough for the toughest, smartest, and most successful people out there, they do something drastically different ... they learn from it. And that's what sets them apart.

Take Benjamin Graham, for example ... He went bankrupt three separate times as an investor. But each time, he documented and studied his failures, and he was eventually able to impart this investment wisdom to countless others -- including Warren Buffett, who in turn learned from his own mistakes and failures.

Early in Buffett's career, he mistakenly believed he could save a failing textile mill. After being forced to liquidate its textile operations, Buffett learned to pay up for quality and turned that company into a $140 billion legend.

Another great example is Pixar's John Lasseter. After he graduated from college, Disney (NYSE: DIS) hired him to captain its Jungle Cruise ride at Disneyland. Later, the company gave him a shot at being an animator, and he quickly recognized the ability of new computer technologies to revolutionize animation.

But Disney was so unimpressed with his first feature that they fired him on the spot. So Lasseter literally went back to the drawing board. After fine-tuning his process, he moved on to the company that would become Pixar, where he's won two Academy Awards and churned out a string of blockbuster hits that included Toy Story, A Bug's Life, and Cars.

Oh, and let's not forget -- he and Steve Jobs later sold Pixar to Disney for a cool $7.4 billion.

Now it's your turn At the end of August, I never would have imagined that we would see the Dow hit 7,500 -- much less almost hit 6,500. But now I know that anything is possible. And I think that rather than celebrating the market’s recent run-up, the best thing we can do is focus on learning from our past mistakes so we can make better investments going forward.

I've already learned that companies like Clearwire -- which bleed cash quarter after quarter and are years away from profitability -- may not be the best places for my money, no matter how intriguing their stories are.

I've also learned that I should avoid investing in companies with business models that are a bit too complex for me to fully understand. That's why I recently sold my shares of NYSE Euronext and Goldman Sachs, and why I probably won't be buying shares of JPMorgan (NYSE: JPM), HSBC, or Fannie Mae anytime soon -- no matter how cheap they get.

Stocks Basics(6): The Bulls, The Bears and other Animals in stock market

In stock market, we often hear the sayings of the bulls and bears, which are in a constant struggle. If you haven't heard of these terms already, you undoubtedly will as you begin to invest.

The Bulls
A bull market is when everything in the economy is great, people are finding jobs, gross domestic product (GDP) is growing, and stocks are rising. Things are just plain rosy! Picking stocks during a bull market is easier because everything is going up. Bull markets cannot last forever though, and sometimes they can lead to dangerous situations if stocks become overvalued. If a person is optimistic and believes that stocks will go up, he or she is called a "bull" and is said to have a "bullish outlook".

The Bears
A bear market is when the economy is bad, recession is looming and stock prices are falling. Bear markets make it tough for investors to pick profitable stocks. One solution to this is to make money when stocks are falling using a technique called short selling. Another strategy is to wait on the sidelines until you feel that the bear market is nearing its end, only starting to buy in anticipation of a bull market. If a person is pessimistic, believing that stocks are going to drop, he or she is called a "bear" and said to have a "bearish outlook".

The Other Animals on the Farm - Chickens and Pigs
Chickens are afraid to lose anything. Their fear overrides their need to make profits and so they turn only to money-market securities or get out of the markets entirely. While it's true that you should never invest in something over which you lose sleep, you are also guaranteed never to see any return if you avoid the market completely and never take any risk.

Pigs are high-risk investors looking for the one big score in a short period of time. Pigs buy on hot tips and invest in companies without doing their due diligence. They get impatient, greedy, and emotional about their investments, and they are drawn to high-risk securities without putting in the proper time or money to learn about these investment vehicles. Professional traders love the pigs, as it's often from their losses that the bulls and bears reap their profits.

What Type of Investor Will You Be?
There are plenty of different investment styles and strategies out there. Even though the bulls and bears are constantly at odds, they can both make money with the changing cycles in the market. Even the chickens see some returns, though not a lot. The one loser in this picture is the pig.

Make sure you don't get into the market before you are ready. Be conservative and never invest in anything you do not understand. Before you jump in without the right knowledge, think about this old stock market saying: "Bulls make money, bears make money, but pigs just get slaughtered!".


Further information: Where did the bull and bear market get their names?
First of all, let's remember that bears are sluggish and bulls spirited and burly. The terms are used to describe general actions and attitudes, or sentiment, either of an individual (bear and bull) or the market. A bear market refers to a decline in prices, usually for a period of a few months, in a single security or asset, group of securities or the securities market as a whole. A bull market is when prices are rising.

The actual origins of these expressions are unclear. Here are two of the most frequent explanations given:

The terms "bear" and "bull" are thought to derive from the way in which each animal attacks its opponents. That is, a bull will thrust its horns up into the air, while a bear will swipe down. These actions were then related metaphorically to the movement of a market: if the trend was up, it was considered a bull market; if the trend was down, it was a bear market.

Historically, the middlemen in the sale of bearskins would sell skins they had yet to receive. As such, they would speculate on the future purchase price of these skins from the trappers, hoping they would drop. The trappers would profit from a spread - the difference between the cost price and the selling price. These middlemen became known as "bears", short for bearskin jobbers, and the term stuck for describing a downturn in the market. Conversely, because bears and bulls were widely considered to be opposites due to the once-popular blood sport of bull-and-bear fights, the term bull stands as the opposite of bears