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9:00 AM EST, Tuesday, October 21, 2008: The price you pay is the biggest determinant of the success (or otherwise) of your investment. That's the number one rule of investing. In an awful economy (like the one we have) we should be able to pick up bargains. As I chase around looking for them, I see:

1. The banks are not yet offloading their real disasters. The major reason for this is bank management inertia. Second reason is it's easier to join the bailout line at the Fed. Being on the dole is easier than working for a living.

Banks have huge construction loans out to failed real estate developers. These loans should go for less than 30% on the dollar -- possibly even 20 cents on the dollar. But they come with the heavy baggage of the extra money it will cost to complete the project and finance the marketing of the condos or the rental units. (A side issue: Think of all the personal guarantees that are no longer worth the paper they're written on.)

2. Much money is still floating around, also called sitting on the sidelines, ready to pounce on great deals. These monies drive the price up -- especially for properties which are finished, clean and profitable. I saw one yesterday offering, on a presently fully-rented property, a 13.5% IRR -- a nice yield for a passive investor. When I asked, "could we get the property for less?" I was told emphatically NO. There were too many potential buyers. The property came with its own mortgage. That's a huge plus.

3. Catching falling knives is incredibly difficult. Remember Tracinda's purchase of Ford shares earlier this year at between $6.50 and $8.50? It sold most of them -- 7.3 million -- this week at $2.43. That's a great way to make a small fortune. Start with a large one. Remember the big hedge fund that lost $1 billion plus on WaMu catching a falling knife also earlier this year?

How difficult is to make money in today's squirrelly stockmarkets. If an insider like Jeff Immelt CEO can't figure it, what about us? From the the October 27 issue of Fortune magazine:

This emerging pattern of confronting problems only after they could no longer be fixed was disturbing, but Immelt remained confident in GE Capital coming into this year. Despite its stumbles, GE has a long history of strict financial discipline. Immelt told shareholders in February, and repeated to employees recently, that GE had no exposure to collateralized debt obligations (CDOs) or structured investment vehicles (SIVs). It uses derivatives for hedging, which is relatively safe, but prohibits speculating in them, which is dangerous. It subjects its financial positions to shock tests - for example, assuming that interest rates rise a full percentage point across the board and stay there for a year; if that happened in 2008, Immelt said at the beginning of the year, GE's positions were so well hedged that the effect on profits would be negligible. His upbeat conclusion in February: "Our financial businesses should do well in a year like 2008."

That was more than just talk. In late 2007 and early 2008, Immelt spent about $10 million of his own money buying GE stock at prices in the middle to upper 30s.

4. The biggest threat to having money sitting around is having it sitting around. The temptation to do something stupid is overwhelming -- in good times and bad. Wall Street calls it "putting money to work." This phrase is unmitigated rubbish. You have to fight it. Outlaw it from your vocabulary. There's actually real benefit to buying six month CDs at your local bank. The interest rate you'll get -- around 5% -- is less valuable than having the money thoroughly tied up, isolated from your own stupidity.

Back to tennis, bicycle riding and reading. All bear market have big rallies -- like the ones of the last two days. Do not be fooled. Happy days are not here. You can see that from third quarter earnings reports showing nice earnings and lousy outlooks. The key is to avoid the temptation to do something stupid.

I speak from vast experience of ultra-stupid "cute" investment decisions made because my money was not "at work." My last cute decision was buying Australian dollars at 96 cents. They're now 68 cents. Who knew that the flight to safety would mean a sharply rising U.S. dollar, a falling Australian dollar and falling gold and silver prices? Who knew?

Capital preservation is key. We need to live for another day. Maybe then, things will be respond to "logic," or at least my logic? I pray daily for that day.

Vicar books into a hotel
Vicar books into a hotel and says to the receptionist 'I hope the porn channel in my room is disabled!'

Receptionist says 'No it's just ordinary porn.'

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.