Apparently, institutional investors have given up on performance in stocks for this quarter. With pre-announcements of earnings beginning to be made, mutual funds have decided to sit on the mountains of cash that they have been accumulating, at least until the quarter is over.

Stock values will not fall every day. Traders almost certainly will cover their shorts periodically and then short again when no strength follows their action into the markets. This is what they have been doing all summer.

However, unless some surprise positive news on earnings surfaces, September will probably live up to its reputation as the poorest performing month of the year for stock investing.

What should private investors do in this dreary investment environment?

There are two investment clichés that are relevant at this time. First, "emotions are the enemy of sound investing." Second, "do not try to catch a falling knife."

A great deal of wisdom is wrapped around that first saying. Indeed, this is why financial planners try to develop rules to take out the emotions in investing. Psychologically, people get warn down by continuous negative news. They increasingly want to be involved when news is good.

Because of this psychology, investors want to get on the bandwagon more and more intensely as the parade continues to march along. By the time most investors overcome their normal restraints, the parade is nearing an end. Thus, they buy high.

Normally, investors are also resistant to selling after the first negative news. They hope for a rebound so they can get all their money out. As stocks continue to descend, investors become increasingly worried until many sell near the bottom. Indeed, technicians see complete capitulation (irrational selling) as a sign of a trading bottom.

To avoid such behavior, planners develop rules such as continuous investing (dollar investing per month or quarter) and long term investing. Are these the best rules? No!!!

Changing allocations based upon economic factors will do better than those simple rules. But allocation shifting must be done without emotion, a very difficult task. The simple rules take away emotion, which causes the vast majority of investment errors.

Unfortunately, many investors got into technology mutual funds near the peak in prices and are now bailing out, when prices appear to be below the earnings capacity of technology companies relative to the prices of other companies.

Indeed, capitulation now appears to be almost complete in the technology arena, suggesting that a bottom is near.

However, the second cliché now should be used. Perhaps real value has been uncovered in some of those stocks, but the knife continues to fall. How many investors, including myself, bought stocks because they had "become cheap" from negative news for the sector?

Instead, we should have waited until a price bottom had been established. This appeared to have occurred in April. It is now clear that the knife had only stalled and had further to fall.

That is why I am looking at some of these companies whose prices have fallen below their relative earnings capacity but appear to be falling further. Six months ago, I would have grabbed them.

However, if the markets begin to rally in October, as I expect, then I might once again seize some of these falling knives. Hopefully, I will not suffer the same bloodied outcome that ultimately happened from my April grasping.