When to Use the 'S' Word: Sell

While many investment advisers recommend staying the course, thinking long term, and maintaining calm in the face of daily market swings, others warn against indifference.

One professional investor, who manages a multibillion dollar portfolio and asked to remain anonymous, calls the current turmoil a precursor of things to come.

He urges investors to beef up their liquidity - putting up to 50 percent of their portfolios in a combination of cash and US Treasury notes. He notes that investment guru Warren Buffet has raised $9 billion in cash - more than ever before.

"All the markets are a mess," he says, citing the Japanese banking crisis, the tailspin of Russian and Asian economies, and other factors.

This investor manages a large bank's portfolio and says he looks for the stock market to fall another 20 to 30 percent. Dramatic changes in the world economy will make it difficult for American companies to meet, much less beat earnings estimates.

Slack demand for US goods in Asia combined with cheap imports from countries trying to sell their way out of recession has just started to take its toll on Wall Street, he says.

"I don't know anything wrong with selling a strong company - a good stock - when market expectations have pushed the price of the stock past its ability to deliver earnings," he says.

While he advocates selling stocks and buying Treasuries, that doesn't necessarily mean selling mutual funds. Fund managers are watching world events, and the good ones should sell vulnerable stocks and buy more stable stocks or Treasuries, he says. "When you go into a fund, you expect them to take care of you."

He says he disagrees with the concept of staying in the stock market through thin times. Sure the market has answered 43-percent dips with 54-percent gains, but so what?

"Why would you want to lose 40 percent even if you are in it for the long term? I'd rather be sitting on the sidelines while it goes down to 40 percent," he says. "I'd rather have cash for a rainy day, and when it seems like the chaos is over, I'd would be buying back."

But how can you tell when is the right time to be out and when you should resume buying?

"After the chaos is over - and that's not now," he says.