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can do:

1. Try and identify "irrational exuberance".

This sounds tough, since we may be jubilant ourselves. But there is one chart (and it's one of the only charts I believe to have any merit) to spot a market top. The chart goes as follows: After a long bull run, a market will often pick up speed. The market will at some point behave like it will fly to the moon. It will often shoot up, get quite choppy for a bit, and then have a few steep drops downward. The market has now begun to correct. It will generally fall for quite a long time, and drop far below its highs.

This chart is extremely reliable. It comes up in every asset class, and looks the almost the same every single time.

Here are some examples:

The NASDAQ crash of 2000-2003:

The Roaring 20s and the Crash of 1929

The Japanese Market Collapse of 1989-1992

Oil, 2007-2008 (an index fund tracking it)

The Commodities Index, 2007-2008

And the scariest of all: Housing, 2005-2008

These charts all follow the same exact pattern, and they're almost a sure sign of an imminent correction.

In addition to seeing charts flying to the moon, you should take note of the chatter in the financial press saying things like, "unstoppable gains", "new plateau of prices", "can't lose", "new era", or any thing else that implies the current state of affairs will only get better. Sometimes it can be quite subtle.

2. Stick to high quality companies.

High quality companies have the benefit that even when the markets crash, they can still maintain much of their value. Thus, sticking to these types of companies will give you some insulation from the mania around other types of stocks.

3. Stock pile cash during the good times.

A fun way to keep from participating in crazy manias in the market is to book profits on profitable positions. The cash that you stock pile now will keep you free and clear of the market carnage that will ultimately happen once the irrational exuberance dies down.

4. Buy government bonds.

To avoid the craze, you can always buy government bonds during a long bull run. This is an extremely powerful idea: When the market crashes, interest rates are lowered as people pile into the safety of government bonds. Bonds have high yields during a bull market, and by holding them, you gain good income in the mean time, and when the market crashes, you can see as much as a 30 percent appreciation in your capital as bond prices rise! You can then use the gains in your bond portfolio to buy cheap stocks that every one has sold! It's a strategy used by the best of the best, and it works time and time again.

MARKET CRASH? TIME FOR A SHOPPING SPREE

If you've managed to stay aloof of all the craze, and managed to stockpile cash (lots and lots of cash)

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