Don't 'Buy and Hope:' How to Survive Until the Next Bull Market

But "there's a bull market in our future," says John Mauldin, president of Millennium Wave Advisors.

That's the good news.

The bad news is Mauldin, who selects active fund managers for his high net worth clients, says any 1990's-style bull market that rewards passive index funds and "buy and hold" investors is unlikely to arrive before for another five-to-six years.

In the interim, the investor and author of the Thoughts from the Frontline e-letter says investors should focus on:

• Staying conservative and preserve capital for the "great opportunities" that will emerge when the dust settles.
• Be active with your portfolio and only buy stocks if you're both a good stock picker and an astute trader.
• Avoid index funds: "Buy and hold was always a bad idea," he says.
• Own some gold as a hedge: But he is not a gold bug or major dollar bear, as detailed here.
• Seek income in quality munis, corporate bonds and dividend paying stocks but (again) you have to be smart with your selection, or find a manager who is.

As the name of his firm implies, Mauldin's market-timing work focuses on the market's "big" cycles - like 15-25 years - from bull (i.e. 1982-1999) to secular bear (2000-present). Price-to-earnings ratios are key to determining when the cycles switch, and Mauldin believes stocks are not "cheap" today based either on trailing 1- or 10-year P/Es, or by market-weighted P/Es as "Stocks for the Long Run" author Jeremy Siegel curiously argued in The WSJ this week.

Mauldin's baseline prediction is for "another leg down" this summer that takes major averages to new lows but sets the stage for a "1974-type bottom"; the key here is to recall the Dow bottomed in price in 1974 but then spent the next 8 years flip-flopping in a wide range around 1000, before beginning its historic rise to 10,000 (and beyond) in 1982.