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9:00 AM EST, Wednesday, April 15, 2009. You have to start with the understanding that very few new businesses actually succeed. Then you have to understand that the number of new businesses expands to use the money available to fund them. Hence in a boom where money is plentiful, Wall Street will encourage new businesses. As more are started, so the success ratio declines. The highest success ratio, ironically, is when times are tough and few businesses are funded, like now. But the due diligence is stronger. The ones that get funded now are more likely to succeed.

Where is the stockmarket going? Richard Russell of Dow Theory Letter has logic and history to suggest that we may shortly test the old mid-March low. I have no idea if he's right. My advice is "if you were lucky to have jumped back in and are now up on paper, take some money off the table. Start to play with the bank's money." This is what the recent market has looked like:

The last few days have been bleak:

Russell writes:

I'm going to start with an extraordinary chart constructed by dshort.com. The chart follows the S&P 500 through four major bear markets. The deep blue line is the current bear market. Note that at the March 9 low the S&P had lost 56.8% of its value. This makes the current bear market the worst since the great bear market of the 1930s. You can see where we are in terms of the 1930s bear market, shown on the chart in gray.

Now here is important information. I researched every bear market since the '30s. Without an exception, following the bear market low and the initial bull market rally, each new bull market saw some sort of test or approach to the initial lows (in the current case, the low would be the March 9 low of Dow 6547). Therefore, the odds based on past performance are that the Dow will decline to test or approach the March low of Dow 6547.

If Dow 6547 is tested successfully (in other words, if the Dow doesn't go lower), and if the next rally surpasses the most recent Dow high (which, so far, is 8083) I would say that the odds are high that a bull market is in force. Note on the chart below, that this bear market is, so far, the shortest in duration of the other three, although the current bear market is already as intense as the 1929-32 affair.

Important -- a strong initial advance from what appears to be a market bottom does not guarantee that a new bull market is starting. For instance, during the horrendous bear market of 1929 to 1932 there were eight rallies, each above 35%, with each rally followed by a new low in the price of the Dow!

Intel thinks we've seen the bottom: Intel chief executive Paul Otellini said yesterday that consumer computer demand is much stronger than the enterprise and that the overall picture isn’t as bleak as some feared. Otellini said it remains difficult to predict demand. But based on a 19 percent drop in inventory between the fourth quarter and the first quarter, it looks like sales have bottomed out and are heading back up. Orders for new chips are growing. Desktop chip sales hit a bottom in February and are climbing back up.

“The worst is now behind us,” he said. “Three months ago, we were sitting in a fragile economic environment and were coming off a horrendous quarter. Three months later, we are still sitting in a fragile economic environment, but we have three months of trend data about demand and what segments are still buying. That has given us the confidence to say we have seen the bottom.”

Otellini joins others -- some economists and some CEOs -- who believe things are "stabilizing."

Obama's Georgetown speech yesterday: It's worth watching and/or reading. Nothing new. But a good overview explanation of what he's trying to do, and why. He's really a great orator. For the video, go to MSNBC. For the transcript, go here.

How to run your business in a recession. Don't pull back. Introduce new products. Push your advertising. James Surowiecki is one of my favorite business writers. He writes in the latest (April 20) New Yorker magazine:

Hanging Tough
In the late nineteen-twenties, two companies—Kellogg and Post—dominated the market for packaged cereal. It was still a relatively new market: ready-to-eat cereal had been around for decades, but Americans didn’t see it as a real alternative to oatmeal or cream of wheat until the twenties. So, when the Depression hit, no one knew what would happen to consumer demand. Post did the predictable thing: it reined in expenses and cut back on advertising. But Kellogg doubled its ad budget, moved aggressively into radio advertising, and heavily pushed its new cereal, Rice Krispies. (Snap, Crackle, and Pop first appeared in the thirties.) By 1933, even as the economy cratered, Kellogg’s profits had risen almost thirty per cent and it had become what it remains today: the industry’s dominant player.

You’d think that everyone would want to emulate Kellogg’s success, but, when hard times hit, most companies end up behaving more like Post. They hunker down, cut spending, and wait for good times to return. They make fewer acquisitions, even though prices are cheaper. They cut advertising budgets. And often they invest less in research and development. They do all this to preserve what they have. But there’s a trade-off: numerous studies have shown that companies that keep spending on acquisition, advertising, and R. & D. during recessions do significantly better than those which make big cuts. In 1927, the economist Roland Vaile found that firms that kept ad spending stable or increased it during the recession of 1921-22 saw their sales hold up significantly better than those which didn’t. A study of advertising during the 1981-82 recession found that sales at firms that increased advertising or held steady grew precipitously in the next three years, compared with only slight increases at firms that had slashed their budgets. And a McKinsey study of the 1990-91 recession found that companies that remained market leaders or became serious challengers during the downturn had increased their acquisition, R. & D., and ad budgets, while companies at the bottom of the pile had reduced them.

One way to read these studies is simply that recessions make the strong stronger and the weak weaker, since the strong can afford to keep investing while the weak have to devote all their energies to staying afloat. But although deep pockets help in a downturn, recessions nonetheless create more opportunity for challengers, not less. When everyone is advertising, for instance, it’s hard to separate yourself from the pack; when ads are scarcer, the returns on investment seem to rise. That may be why during the 1990-91 recession, according to a Bain & Company study, twice as many companies leaped from the bottom of their industries to the top as did so in the years before and after.

Chrysler’s fortunes in the Great Depression are a classic instance of this. Chrysler had been the third player in the U.S. auto industry, behind G.M. and Ford. But early in the downturn it gave a big push to a new brand—Plymouth—targeted at the low end of the market, and by 1933 it had surpassed Ford to become North America’s second-biggest automaker. On a smaller scale, Hyundai has made huge gains in market share this year, thanks to a hefty advertising budget and a guarantee to take back cars from owners who have lost their jobs. Those gains may turn out to be temporary, but in fact the benefits from recession investment are often surprisingly long-lived, with companies maintaining their gains in market share and sales well into economic recovery.

Why, then, are companies so quick to cut back when trouble hits? The answer has something to do with a famous distinction that the economist Frank Knight made between risk and uncertainty. Risk describes a situation where you have a sense of the range and likelihood of possible outcomes. Uncertainty describes a situation where it’s not even clear what might happen, let alone how likely the possible outcomes are. Uncertainty is always a part of business, but in a recession it dominates everything else: no one’s sure how long the downturn will last, how shoppers will react, whether we’ll go back to the way things were before or see permanent changes in consumer behavior. So it’s natural to focus on what you can control: minimizing losses and improving short-term results. And cutting spending is a good way of doing this; a major study, by the Strategic Planning Institute, of corporate behavior during the past thirty years found that reducing ad spending during recessions did improve companies’ return on capital. It also meant, though, that they grew less quickly in the years following recessions than more free-spending competitors did. But for many companies recessions are a time when short-term considerations trump long-term potential.

This is not irrational. It’s true that the uncertainty of recessions creates an opportunity for serious profits, and the historical record is full of companies that made successful gambles in hard times: Kraft introduced Miracle Whip in 1933 and saw it become America’s best-selling dressing in six months; Texas Instruments brought out the transistor radio in the 1954 recession; Apple launched the iPod in 2001. Then again, the record is also full of forgotten companies that gambled and failed. The academics Peter Dickson and Joseph Giglierano have argued that companies have to worry about two kinds of failure: “sinking the boat” (wrecking the company by making a bad bet) or “missing the boat” (letting a great opportunity pass). Today, most companies are far more worried about sinking the boat than about missing it. That’s why the opportunity to do what Kellogg did exists. That’s also why it’s so nerve-racking to try it.

Widescreen or full screen? I'm racking my brain as I scanned Amazon for DVDs. Which should I buy? Answer: Only widescreen.

This is the movie in widescreen. This is the way it was originally shot.

This is the movie in full screen format. The movie s truncated so it can fit an absurdly shaped 4 x 3 format, old-style glass TV. For a full explanation, read this.

For mutual funds, it's not the return that counts. Part 2. A smart Wall Street observer once remarked, "The only way to make money with mutual funds is to own the mutual fund company." See yesterday's story on Mario Gabelli, who paid himself $46 million in 2008.

More senior moments
At 92, Wally married Anne, a lovely 25 year old. Since her new husband is so old, Anne decides that after their wedding she and Wally should have separate bedrooms. She is concerned that her new but aged husband may overexert himself if they spend the entire night together.

After the wedding festivities Anne prepares herself for bed and the expected 'knock' on the door. Sure enough the knock comes, the door opens and there is Wally, her 92-year old groom, ready for action.

They unite as one. All goes well, Wally takes leave of his bride, and she prepares to go to sleep. After a few minutes, Anne hears another knock on her bedroom door, and it's Wally. Again he is ready for more 'action.'

Somewhat surprised, Anne consents for more coupling. When the newlyweds are done, Wally kisses his bride, bids her a fond goodnight and leaves.

She is set to go to sleep again, but, aha you guessed it..... Wally is back again, rapping on the door, and is as fresh as a 25-year-old, ready for more 'action.' And, once again they enjoy each other.

But as Wally gets set to leave again, his young bride says to him, 'I am thoroughly impressed that at your age you can perform so well and so often. I have been with guys less than a third of your age who were good only once. You are truly a great lover, Wally.'

Wally, somewhat embarrassed, turns to Anne and says: .......'You mean I've been here already?'

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads on this site. Thus I cannot endorse, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Michael's business school tuition. Read more about Google AdSense, click here and here.