Rules for Investing in the Next Bull Market

How to be smarter when the market comes back – and it will.

Is this a new bull market? Nobody really knows for certain. But one will -- presumably -- come along in due course. Will investors make the same mistakes they made last time, or will they be wiser? Here are 12 rules for the next bull market -- whenever it turns up.

1. Go global.

Most investors prefer to stick to their "home" market. It's a mistake. America accounts for only a fifth of the world economy but a third of its share values. No one knows where the best or worst returns will be, so spread your bets across the board. And you already have an oversized bet on the U.S. economy:, because you likely live, work and own a home here.

2. Avoid big moves.

If you buy or sell heavily in one shot you're taking a needless risk. And waiting for the right moment to make your move is futile. You probably won't catch the bottom or the peak anyway. If a market trend has much further to run, then what's the rush? And if it doesn't … what's the rush?

3. Remember the market is just "us."

No wonder shares rose when everyone was buying, and fell when they were selling. That was the reason. And when everyone is trying to predict "the market," they are effectively chasing themselves through a hall of mirrors.

4. Don't get fooled, don't get tense… and don't get fooled by the wrong tense.

Wall Street is riddled with people who mistake the past perfect ("these shares have risen") with the present ("these shares are rising") or the future ("these shares will rise."). Don't get suckered.

5. Pay no attention to TINA.

Sooner or later someone will urge you to buy shares, even at very high prices, because There Is No Alternative. It is a popular hustle at the peak of the market. There are always alternatives -- like holding more cash until valuations are more attractive.

6. Be truly diversified.

That means investing across a spread of different asset classes and strategies. As investors discovered last year, "large cap value" and "mid cap blend" funds don't offer diversification. They're just marketing gimmicks.

7. Treat forecasts with a grain of salt.

Most economists missed the recession, most strategists missed the crash, and most analysts are bullish just before a stock falls. Even the good experts are prone to group think, office politics, career risk - and hall of mirror syndrome (see point 3, above).

8. Never invest in what you don't understand.

Be happy to underperform a bull market. During the last boom, many investors were advised to go all-in on shares to get the biggest long-term gains. But the stock market has infinite risk tolerance and an infinite time horizon. Real people can't compete with market indices, and shouldn't try.

9. Ignore what everyone else is doing.

It's natural to want to "join the crowd" and avoid being "left behind." Leave those instincts in eighth grade. When it comes to investing, do what's right for you and your family.

10. Be patient.

Investment opportunities are like buses. If you missed one, you don't have to chase it. Relax. If history is any guide, others will be along shortly.

11. Don't sit on the sidelines completely until it's too late.

You'll probably end up splurging at the last moment. If you are afraid to invest, do it early, little, and often.

12. And above all: Price matters.

After all, an investment is just a claim check on future cash flows, whether it be a company's profits, a bond's coupons or an annuity's income stream. By definition, shares in a solvent company are twice as good at half the price… and vice versa. It's amazing how many people get suckered into thinking it's the other way around.

I'd like to hear from readers: If you have any suggested rules of your own, let me know.

Write to Brett Arends at brett.arends@wsj.com