I also believe it applies to what I do in the investment world: short-term trading. I trade options and futures, but I don’t use all of my money for this. My wife and I have 80 percent of our investment money in long-term assets. She handles those investments while I get to play with the other 20 percent in the short-term.

How you diversify your portfolio also goes hand in hand with the 80/20 Rule. You should not have all your money in one stock, one investment vehicle, one market, or being handled by one firm. Look at how many people put all their money with Bernie Madoff and lost it.

[Ed. Note: Investment expert Rick Pendergraft and 8 of his colleagues will be revealing their top investment strategies this June. Find out how you can learn their secrets to making a fortune in today's market right here.]

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If you are a long-term investor, you have an incredible opportunity to pick up some stocks that are trading well below where they were at the beginning of 2008. Granted, some – if not most – stocks deserve to be down where they are. They were way over-priced this time last year, and now they are priced accurately.

However, some stocks have gone down for no other reason than “guilt by association.” These are the ones you want to be to adding to your long-term portfolio.

I am talking about companies like Tupperware (TUP) and IBM that are trading at a 30-40 percent discount from where they were one year ago. This despite the fact that their earnings have not declined nearly as much as their stock prices have.

Look for companies with a strong return on equity ratios. Look for companies whose stock price has dropped sharply, but whose sales and revenues have not declined or have not declined as sharply as the stock.

[Ed. Note: The S&P 500 is down 36% from January of last year... the Nasdaq has dropped 763 points in the same time... and the Dow is still hovering around 8,000 points. But you should be ready to take action when the moment strikes. Some incredible opportunities are headed your way, and market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of them. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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But there is a lesson to be learned from every rough patch. One of the lessons I learned from the crazy market of fourth-quarter 2008 has to do with the elasticity of indicators.

Here’s what I mean by “elasticity.” A number of indicators – including most of the overbought/oversold indicators – are calculated based on the most recent trading activity. In the fourth quarter, these indicators were stretched out like an elastic waistband, thanks to big moves in both directions.

The Relative Strength Index, for example, uses volume and price change in its calculations. When a stock goes up 4 or 5 percent two days in a row – and then drops 4 or 5 percent the next day – the RSI is getting stretched out. When the market calms down and that same stock is moving less than 1 percent per day, the overbought and oversold levels are harder to reach because the RSI is stretched out from the 4 and 5 percent moves. As a result, you get fewer trading signals from this indicator.

With the market settling down a little, the overbought/oversold indicators are starting to look normal again.

If you use these indicators in making your trading decisions, they probably lost some of their usefulness in the fourth quarter. Now that they are moving back to a more normal state, they should become more useful.

I personally cut back on my trading because I wasn’t getting enough signals from the indicators I use. Now that the calendar has rolled over to January, I am starting to see more opportunities.

[Ed. Note: You may be cautious with your investments right now... but you have to be ready to take action when the moment strikes. There are going to be some incredible opportunities out there, and market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of them. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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I need to make one thing clear, though. While I think the overall market will be higher over the next 12 months, that doesn’t mean I think you can buy any old stock and make money this year. There are still potential landmines out there, and you will want to do your homework.

For instance, I think the homebuilder stocks are ready for an incredible turnaround. But rather than picking one company, I’ve recommended the Spyder Select Homebuilders ETF (XHB). This gives you instant diversification with a number of homebuilders, without company-specific risk. 

One sector that’s still filled with problems is the financial sector… so I’m shying away. While the financials are benefiting from injections of capital from the Fed, how many skeletons are still in the closet?

[Ed. Note: You may be cautious with your investments right now... but you have to be ready to take action when the moment strikes. There are going to be some incredible opportunities out there, and market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of them. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]  

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The stock market tends to lead the economy. It heads lower before the economy does, and it tends to start heading higher before the economy recovers. So if you have your investment portfolio on the sidelines, you shouldn’t wait for the economy to turn higher before you start investing.

My advice is to start getting your money back into the market now. If you wait until the employment picture turns around, you will be late to the game.

[Ed. Note: The market may not look so hot right now. But you should be ready to take action when the moment strikes. Some incredible opportunities are headed your way, and market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of them. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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My friend Dave owns his own title company. As you can imagine, he has been struggling to stay afloat, with the housing market being so bad over the last two years. But what I learned from him is very encouraging. Dave said his business has increased 300 percent this month over last month and over last December.

It seems the huge drop in mortgage rates is finally creating some activity. The skeptics will say, “Sure. The refi business must be going crazy.” But Dave said his purchase activity has jumped as well. This suggests to me that people who have been interested in buying a home were just holding out until mortgage rates hit new lows.

I have been bullish on the housing sector since mid-November. On November 10, during an appearance on Fox Business News, I recommended the Spyder Select Homebuilders ETF (XHB) – and hearing Dave’s news makes me even more bullish on the XHB. You might consider it to jumpstart your investments this year.

[Ed. Note: You may be cautious with your investments right now... but you have to be ready to take action when the moment strikes. There are going to be some incredible opportunities out there, and market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of them. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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In December ‘74, the economy showed job losses of 602,000. And that month also marked the end of the bear market that had gripped the U.S. for two years. From December ‘74 through June ‘75, the Dow rose an incredible 42 percent.

Could we be looking at a replay – where things look the bleakest right before a turnaround?

The market is certainly due for a bounce, and the oversold levels are where they were in ‘74, so the similarities go further than just the employment numbers.

If the next six months play out like things did in ‘74-’75, where would it take the market? The Dow would jump from where it is now to approximately 11,800.

So how do you bet on history repeating itself? The best way is to use limited capital with options – and if you are going to stick with the comparison, you want to buy calls in the AMEX Diamonds Trust.

[Ed. Note: The market may be volatile, but it still offers plenty of ways to profit. Knowing the personalities of the stocks you control could keep you ready to tackle opportunities as soon as they present themselves. Market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of these chances to prosper. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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One of the accomplishments I am most proud of revolves around the holidays and kids (though not my own kids). 

In December of 1984, my senior year of high school, I helped start a tradition in my hometown of New Castle, Indiana. My sociology class was going to “adopt” a family for Christmas, and we were all going to donate money to buy them food and toys. While I was all for it, I had what I thought was an even better idea. 

I proposed to my teacher – and my mother – that instead of adopting one family, each student in my class would adopt one of the children in my mother’s Head Start class. The very first time we did this was in my senior year, and I baked cookies and bought candy canes for each and every one of the children. We had a volunteer dressed as Santa Claus, and my classmates bought these underprivileged kids – who otherwise would not have received much of anything for Christmas – toys, bikes, footballs, and all kinds of goodies. 

Over the years, as my mom went to conventions and met other Head Start teachers, she kept spreading the word about what we did. The last I heard, there are over 25 classes doing it throughout the Midwest.

That first time, in 1984, I could have never guessed how it would catch on. The programs in New Castle now have corporate sponsors that buy the children clothes (and other things too). The entire high school is involved, not just the Social Studies department. And most of the local Head Start kids are adopted by two or three high school kids.

The last time I was able to make it back for the party, they had to hold it in an elementary school gym in order to fit in all the Head Start kids and the high school kids. The pre-schoolers were walking out with armloads of “stuff.” To see the smiles on their faces was an incredible feeling. To know that my mother and I started this tradition makes it that much more gratifying. Every time I think about it, I want to schedule a trip back home for Christmas so I can be there. And I get a little choked up thinking about how many kids this has positively affected over the years. 

As the Oak Ridge Boys say in their Christmas classic, “Thank God for kids.”

[Ed. Note: What's your favorite holiday tradition? Let us know right here.]

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They can be happy, sad/depressed, manic, or plodding. Happy stocks go up almost every day, regardless of market conditions. Sad or depressed stocks go down almost every day, regardless of market conditions. Manic stocks? We could call these “Jim Cramer” stocks, because they are as volatile as the CNBC commentator. They bounce wildly from day to day. And we could call plodding stocks “Eeyore” stocks. They slog along without drawing any attention, just hoping someone will notice them. For the most part, these stocks grind sideways.

Knowing the personality of a stock will determine how you want to trade it. You want to own happy stocks… short depressed stocks… buy options on the manic stocks… and sell options against the plodding ones.

[Ed. Note: The market may be volatile, but it still offers plenty of ways to profit. Knowing the personalities of the stocks you control could keep you ready to tackle opportunities as soon as they present themselves. Market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of these chances to prosper. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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Let’s look at the math from that May article.

According to the Bureau of Transportation statistics, there were 135,399,945 licensed automobiles in the United States as of 2003. If the average driver burns 50 gallons of gas per month, this means 6.8 billion gallons are being consumed each month in this country.

When gas was at $4 a gallon, Americans were spending over $27 billion on gas per month. Now, with gas back down to $2 a gallon, that amount drops in half – to $13.5 billion spent on gas each month. 

Thanks to the sharp drop in gas prices, $13.5 billion per month have been freed up for Americans to spend on things other than gas. This amounts to $162 billion per year. 

With expectations for the holiday shopping season so low, the dramatic drop in gas prices could be the piece of good news the market has been waiting for.

[Ed. Note: You may want to be cautious with your investments right now... but you have to be ready to take action when the moment strikes. There are going to be some incredible opportunities out there, and market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of them. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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