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9:00 AM EST, Thursday, November 6, 2008: Yesterday U.S. stockmarkets fell 5%. That erased some of the gains since late October. There are now serious "bargains" out there. But many "bargains" keep falling and falling and falling. Who knows how much farther Citigroup ($12.41), GM ($5.56), Cisco ($16.57), Research in Motion ($52.25) and the New York Times ($9.94) will fall.

My personal belief is that stocks will fall further. There are only two ways to play this market --

1. Selectively short drecky stocks (and a Ultra-Short index) with a tiny part of your portfolio.

2. Stay out with the rest of your portfolio, in cash. I'm still mulling the best place for cash. Ideas welcome.

I started this column this morning with an essay about "50% of a stock's value is in its industry." You had picked booming industries to pick booming stocks. This was a brilliant thesis. I could find booming professions -- like bankruptcy lawyers and repo men (see below). But I couldn't find any booming industries. I even checked listed pawnshops -- XPOI and FCFS -- but they weren't setting the world on fire.

In desperation, I did some charting. This is the Dow for the past month. I drew a red line, thinking this was some sort of floor. We've above it for now. But we're getting closer after yesterday's huge 486 point drop. Hedge funds are still dumping stocks to meet redemptions.

This is the Dow charted by day, falling consistently and then hugely volatile in October and now November. As we say in Australia, the market goes up and down faster than a whore's drawers.

My favorite financial writer is the New Yorker's James Surowiecki. This morning he wrote:

So much for that idea

Well, that didn’t last long. After yesterday’s Election Day rally, in which just about everything went up, today we had a post-Election-Day sell-off, in which just about everything, across the board, went down, and which featured yet another of those late-day indiscriminate dumping of stocks. I don’t think there’s anything interesting to say about the sell-off, which put the market back where it was late last week, but I remain astonished at how inured we have become to extraordinary volatility. There were big banks and major cyclical stocks that were down ten to fifteen per cent today, which should be moves that provoke amazement, rather than ennui. (The huge sell-off in the banks seems particularly extraordinary.)

As I’ve suggested before, what we’re seeing is that volatility tends to feed on itself: because the moves up and down are so big and so fast, no one feels like they can trust the market’s valuations, which in turn leads to buying-and-selling panics, accentuated, of course, by the program trading that dominates the exchanges. What we really need, I think, are three or four days in a row when the market moves by less than one per cent. But while that would be rational, it’s also, at this point, hard to imagine.

Having said all this, I want to make an obvious point that for some reason really hit home to me today, which is that people’s decisions to buy and sell stocks, and particularly when they decide to buy and sell, are downright peculiar. Let’s take Citigroup, which was down fourteen per cent on the day (oh, is that all?). It got as high as $14.68, but it traded for most of the day between $13.50 and $14 a share. And during that time, the vast majority of Citigroup shareholders could have sold their shares and gotten a price between $13.50 and $14. (I told you this was obvious.) Yet there were literally millions of shares which were not sold at that price that were instead sold, late in the day, for significantly less. People (or programs) that weren’t interested in selling Citigroup shares at $13.50, later decided that they did want to sell them at $12.75, even though, at the lower price, Citigroup’s valuation was more reasonable, its dividend yield was higher, and its upside reward was obviously greater. Usually, in markets, when prices fall, demand rises. But in the stock market, particularly on days like today, lower prices actually lower demand.

This is precisely what Warren Buffett finds so mystifying about the way most people, including arguably many money managers, approach stocks. For Buffett, investors should be much happier buying when stocks are down, because that means you can get more shares for your money. But it seems clear that this is not how most investors are psychologically built. Instead, we like to buy when stocks are rising, and we feel the need to sell when they’re falling. The impulse to do this is very hard to resist, and it is one of the biggest reasons why people, whether they’re investing in individual stocks or mutual funds, find it so hard to make money in the market.

So, is Buffett any better at catching a falling knife in this market than you or I? He has options on Goldman Sachs at $115. It closed last night at $85.77. He has options on GE at $22.25. Last night it closed at $19.64. To give him credit, he hasn't lost money. He bought preferred shares on which he 's getting 10%. And he has free options at those prices. He, smartly, didn't buy the falling common.

I wonder why these two companies don't open this "Buffett Deal" to you and I? I would buy in. 10% on my money and an option to buy the common at today's prices. Good deals!

Yes there are booming "industries." Stephen Colbert has found one -- the repo man. Watch the video. It's wonderful. Click here. There are videos and full episodes on The Colbert Report. You can also view full episodes of Jon Stewart's The Daily Show by clicking here.

More and more of Americans are getting their daily "news" from these two shows. For us in New York, they're on Comedy Central (channel 45), starting each evening at 11 PM. They've become a ritual around our house. Their timing is superb. If the jokes are good, we laugh. If the jokes are not, we fall asleep. It's win-win for us.

Five key priorities for Obama: I have a minor "in" with the new administration. Yesterday I sent in my five priorities:

+ Get out of Iraq and Afghanistan ASAP. Save money. Save lives.

+ Send money to municipalities, with serious conditions – especially deleveraging.

+ Repair America’s infrastructure – especially the air traffic control system, bridges and highways. These monies will put people back to work.

+ Stop wasting money on the financial bailout. It isn't causing more lending, or boosting the economy. It's simply helping the big, successful banks buy more banks.

+ Give all children up to age 19 health insurance. That’s financially do-able now. Healthier children will save hugely on health bills in future years.

Any other thoughts? Email me, please.

Innovation in urinals.

Little Nancy's Pet Goldfish

Little Nancy was in the garden filling in a hole when her neighbor peered over the fence.

"What are you up to, Nancy?"

"My goldfish died," replied Nancy tearfully, without looking up, "and I've just buried him."

The neighbor was concerned, "That's an awfully big hole for a goldfish, isn't it?"

Nancy patted down the last heap of earth and then replied, "That's because he's inside your cat."

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.