Published: January 20, 2010

When it comes to the global financial crisis, many so-called "experts" think the worst is behind us. But I don't buy it.

And I'm not alone.

Just look at what some other big-name investors - each also known for their independent thinking - are saying or doing right now:

• Bond king Bill Gross is nervous and raising cash.
  
  
• Author, commentator and global-markets guru Jim Rogers has repeatedly said that he's not investing in stocks anywhere in the world right now.
  


• Hedge-fund heavyweight John Paulson is moving aggressively into gold.
  
  
• And investing icon Warren Buffett - never one known for tipping his hand - is candidly stating that the U.S. financial-crisis cleanup is far from complete. The fact that he's reportedly buying more shares of Korean steel dynamo Posco (NYSE: PKX) would punctuate this point.

Indeed, entire nations - I'm thinking specifically of China, India, Brazil, Chile and one or two others - are adopting similar stances. And they're doing so for the same risk-fearing reasons. They want to grow their money but they don't want to place it at risk any more than we do.

This kind of uncertainty can be paralyzing, making it tough to decide where - or even if - we should deploy our investments.

Fortunately, we've been here before. And what we learned will allow us to profit no matter what the financial future holds for the U.S. marketplace.

Using Past Losses to Zero in on Future Profits
A decade ago, in the middle of the euphoric ardor of the dot-com bubble, I warned that we were following in Japan's footsteps and risking a repeat of that country's "Lost Decade." A balanced approach to investing was the key to success, I said, and value and dividends would win out over growth in the decade to come.

The U.S. stock market had become a giant casino - but one in which everybody won - so my warnings were ignored, and even ridiculed, by the "tech-savvy" investing set, whose members said I was out of step with the Brave New World of the World Wide Web. Never mind the fact that I have lived in Japan and spent nearly 20 years in Asia.

We all know how this turned out.

In 1999, if you'd followed the masses and invested $100,000 in the Standard & Poor's 500 Index, you'd have incurred an average annual loss of 1.1% - leaving you with only $89,000 for 10 years of work.

Had you taken that same $100,000, and invested it using a simple stock/bond split (60% in stocks and 40% in bonds) - maintaining that ratio by rebalancing the portfolio every Dec. 31 - you'd have reaped an average annual return of 4.3% for that same 10-year stretch and ended the decade with $300,500, according to a recent study by The Vanguard Group Inc.

There's a message here. Not only is it very clear, but it's one we repeat frequently: successful investing isn't about "buy and hold" - it's about "buy and manage."

"Buy And Manage" Your Way to Long-Term Wealth
"Buy and manage" is an investing mantra that's near and dear to my heart for a couple of reason.

First, it forces you to take profits. Most people think this means to "buy low and sell high," but that's not the case. Rebalancing forces you to "buy lower and sell higher." It also helps tame two of the most costly human characteristics - fear and greed - by instilling a level of discipline that helps you make the right decision at the right time.

Most investors do the reverse: They fall prey to their fears, and sell at market bottoms, and ahead of rallies that could have saved them; and they give in to greed and buy in at market tops, just before the indices reverse course and head for the cellar.

There's another benefit, too, and it's one that most investors fail to consider. Because rebalancing forces you buy in at lower lows, it can help position your money for the next big rally. For instance, we began urging investors to rebalance their portfolios early last year to take advantage of the run in bonds and abnormally beaten down stock prices.

Second, buy-and-manage investing forces you to properly concentrate your assets so that you maintain your game plan even as different investment choices move in and out of favor with investors.

Third, managing your assets - even if that "management" is limited to simple rebalancing - can help you to automatically tap on the brakes at a point when other investors are skidding out of control and toward a ravine.

I talk to thousands of investors during the course of a year, most of them at the many conferences that I appear at all around the world. And I still find it surprising that - even after the dot-com (2000-2001) and banking-crisis (2008-2009) investing debacles that were largely Wall Street engineered - investors continue to believe that buy-and-hold investing is a legitimate strategy.

It isn't: It's a marketing gimmick that was created by Wall Street. It's proxy for a complete lack of personal accountability, especially when it comes to the sweeping bull markets that are propelled by nothing more than abnormally low interest rates, debt and marketing hype.

In this post-financial-crisis environment, the winners will be those who learn how to buy and manage their assets. The game has changed forever, and investors who fail to change with it and understand the new rules will once again find themselves left behind - after their assets have been eviscerated for a third time in recent memory.

One key new rule is to view earnings statements with skepticism. For decades, stock prices have turned on earnings reports. But let's face it, at their most basic level, earnings are really just a bookkeeping entry. Accounting rules allow for all sorts of shenanigans. And we all know that corporations "manage" their earnings, pulling profits from a future quarter to "save" a current quarter, or pushing "excess" current profits into a future quarter to "save for a rainy day," so to speak. Years ago, a former Wall Street chief financial officer told me confidentially he could push earnings as much as 5% in any given quarter - whether he wanted to do so or if The Street "needed" him to do so.

If earnings can be manipulated that easily, it's no wonder that some of this financial tomfoolery led to the greatest loss of empire in modern history. What I mean by that is that America went from having the world's strongest currency and being a force to be reckoned with to the world's single largest source of debt and a liability for every single one of our trading partners. Bear in mind that this happened despite one of the most powerful stock-market surges in U.S. history.

Although we still use earnings in a limited way, tomorrow's markets will require other quantitative and qualitative metrics that we can use and trust as we evaluate a company and its stock - including certain "balance-sheet" attributes that I recently wrote about.

This shift to other metrics makes sense on a personal note, too. Fueled by rising home prices, rising incomes and cheap money (there's that cheap-money thing again), credit rose, too. So millions of people acted like they had their own personal piggy banks and bet the ranch when they should have been tending the farm. Adding insult to injury, our regulators not only failed to take away the punchbowl, but they actually poured in some financial moonshine, liberalizing the once-strict laws and regulations that could have prevented this financial disaster from happening in the first place.

Not to be left out, Wall Street created some "innovative" financial models that were really nothing more than fancy accounting and badly calculated risks. And the U.S. Federal Reserve watched blithely from the sidelines and actually refused to take action several times.

Meanwhile, back in the corporate world, low rates meant that earnings rose because debt cost less and the banks - here we go - fell all over one another in the bid to loan these companies more money. That's how the concept of "leveraged assets" came into vogue. It was all about "OPM" - Wall Street parlance for "other people's money."

Four Rules to Rule the Future
We've clearly come full circle, and run the risk of repeating past mistakes. That's why I am advocating careful, measured investment moves. It's why I'm also telling investors to dump "buy-and-hold" (a.k.a. "buy-and-hope") investing strategies in favor of the afore-mentioned "buy-and-manage" philosophy.

Following a 60% rise off of the early March lows, many investors have dropped their guard, relieved that the worst is behind us.

Don't you believe it. In fact, allow me to leave you with four solid strategies that are tailor-made for the uncertain times that history suggests are certainly still to come:

1. Concentrate Assets: The best investors know that the composition of their holdings matters more than the selection of the individual holdings, which is why they spend inordinate amounts of time making sure their money is not spread willy-nilly all over the place. I'm not and it is not conventional diversification which doesn't, as many investors found out the hard way, work when everything goes down at once. The simplest way to achieve this goal to make sure your portfolio is set to the 50-40-10 proprietary allocation. That way you'll be forced to tap on the brakes if the economy falters again, but will still able to grow your money if the U.S. marketplace defies the odds and continues to chug along.

2. Stick With Quality: Make sure you've got a healthy dose of "balance sheet" businesses with high global cash flow, globally recognized brands and strong access to credit. We're bullish as long as the Fed doesn't ask us to pay the bill. Whenever possible chose companies meeting these criteria that have Price/Earnings (P/E) ratios of 12 or less. That tends to present you with stocks that have more upside than down. Add to positions on really bad days so that you're maximizing each dollar you invest.

3. Explore New Territory: Integrate hard assets - such as commodities and currencies - even if you have never considered them before. That way, if the going gets tough and the 14 trillion reasons for inflation (the dollar measure of U.S. federal debt) that we believe could come home to roost, you'll have the intestinal fortitude to ride out the rough times. And the profits you'll have in hand will put you in a much better position, especially when you realize that most investors have been taken to the poorhouse - again.

4. Accede to Asia: Near-term bubble or not, China's on track for an unprecedented 700% expansion in gross domestic product (GDP) over the past 30 years and over the long haul will prove to be the greatest wealth-creation opportunity in history. Double your exposure to this region. The proper combination of protective stops and a few choice stocks can help you capitalize on the what will undoubtedly be the biggest profit opportunity of our lifetimes.

-- Keith Fitz-Gerald
Investment Director
Money Morning