PAUL B. FARRELL: The 3rd Stock-Market Crash of The 21st Century Is Coming And Mr. Market Will Soon Lose $10 Trillion of Your Money, Repeating 2008 And 2000. How Much Will You Lose This Time Around?

How much will you lose this time around? Four years ago, on March 30, 2009, our column headline announced:“6 reasons I’m calling a bottom and a new bull.”

The Dow fell from 14,164. Hit bottom at 6,547. And Wall Street lost over $10 trillion of America’s retirement market cap. You lost lots. But it’s back up more than 100% since. We forget.

Time for another crash? Oh yes. Remember: Investors Business Daily’s publisher, Bill O’Neil, wrote in his classic, “How to Make Money in Stocks”: “During the last 50 years, we have had 12 bull markets and 11 bear markets … The bull markets averaged going up about 100% and the bear markets, on the average, declined 25% to 30%.” And “the typical bull market lasted 3.75 years and the classic bear market lingered only nine months.”

Today’s bull is over four years old, in dangerous territory.

Yes, you are facing an aging bull. Ready for pasture. But Wall Street’s still gambling with your money. Remember, Wall Street casinos have already lost roughly $10 trillion twice this century. Twice. And soon Wall Street will do it again.

But exactly when? Here’s how to figure “exactly” when. In his classic, “Stocks for the Long Run,” economist Jeremy Siegel studied all the “big market moves” between 1801 and 2001. Two centuries of data. Conclusion: 75% of the time there’s no rational explanation for “big moves” in stock, not up, not down.

So stop asking, maybe some technician, quant or high-frequency trader can predict short-term swings. But the “big market moves?” Never.

So “exactly” when? America’s top experts are warning us — it’ll happen before year-end. That’s “exactly” when. Why? It’s obvious. By year-end 2013 our aging bull will be 4 ½ years old, well past Bill O’Neil’s “average” 3.75 years for a bear drop putting a bull out to pasture.

So any rational investor would have to conclude that Mr. Market — as Warren Buffett’s mentor Benjamin Graham called the stock market in his classic “The Intelligent Investor” — would know that a bear drop, a crash, meltdown, or something very painful is coming very soon. Indeed, could happen anytime, maybe even tomorrow, because this bull is old-old by Bill O’Neil’s basic calculations.

Mr. Market will soon lose $10 trillion of your money, repeating 2008 and 2000

So the real question is not when, nor if, but how much will you personally lose in this third crash of the 21st century? Ask yourself: How would a rational investor estimate losses? Simple: a rational investor would logically estimate that Mr. Market could easily drop around 50%, again.

Another way of saying it is that Mr. Market’s latest roller-coaster ride will cost today’s Main Street American investors a new loss of another $10 trillion in market cap. Why? Because the Dow will loses half its value, crashing from today’s roughly 14,400 to 7,200.

That’s a reasonable conclusion by a rational investor, using the Graham-Buffett calculator logic on today’s Mr. Market. Remember: the Dow went all the way down to 7,286 in 2002 after the dot-com crash. Then crashed even deeper to 6,547 in 2009 after the Wall Street credit meltdown.

Handy-Dandy Investors Crash Loss Calculator: 25 portfolio killers

Here’s our little behavioral-economics calculator to help you figure out whether you’ll lose 50% when Mr. Market comes crashing again.

Quickly scan through the following list of common investor biases and bad habits. Don’t stop to think rationally about any one. Just keep tabs on roughly how many of the 25 fit some investment decisions you made during the dot-com era and in the years leading up to the recent bank credit meltdown.

And do it very fast. Maybe five seconds or so each. When you finish your scanning and have your number (even if it’s just a rough estimate like 12 of the 25) then we’ll go to the last step in our Handy-Dandy Investors Loss Calculator:

Overconfidence bias: You love trading and gambling. You pay little attention to the fees, commissions and taxes, because your know you’ll score big.

Blinders: Investors often stereotype certain companies, stocks and funds as “winners” or “losers” (Dell? Apple?), often missing turning points signaling a change in company fortunes, opportunities and reversals.

Heroics: Irrational investors tend to overestimate their stock-picking abilities, underestimate Mr. Market. Then later exaggerate their successes, talk about the one that got away.

Denial: Once locked in, irrational investors hate admitting they’ve made a bad decision. It’s an ego thing. So they hang on to losers, even refuse to sell losers. It’s un-American. Or means you’re not as manly or as smart as you thought.

Attachment bias : You fall in love with “special” stocks. You exaggerate virtues, downplay problems and then hold on too long.

Extremism bias: Irrational investors have trouble assessing risk, often bet big, and lose big. Probable events become certain. Unlikely events become impossible. So you’re likely to miscalculate your risks.

Anchors: In your mind you tend lock in price targets, like a hundred-buck stock or Dow 15,000, then minimize any data that suggests you’re wrong.

Ownership bias: Once purchased, you value what’s yours even higher, like overvaluing your home. That blinds you to the real value, adds to your losses.

Herd mentality: For all the talk about macho individuality, the truth is, most investors don’t think for themselves and tend to follow the crowd, or blindly track some trend.

Getting-even bias: You lose, then you try to break even taking extra risk, doubling-down. You get overanxious, overreact, and you lose more.

Small-numbers bias: Making decisions on limited data that’s incomplete and likely exaggerated.

Loss aversion: Many cautious people tend to avoid losses more than seek gains. That fear keeps investors out of the market too long, and in “safe” money markets.

Pride: You hate selling losers, hate admitting error. You have a no-talk rule.

Risk averse: You take too little risk after a big loss or a losing streak, get too conservative, don’t trust yourself, and miss opportunities for higher returns.

Myopic bias: You think recent data’s more important than older information. So you may pull back after a losing streak, or ride a winning streak till you lose it.

Cognitive dissonance: You filter out bad news and tend to ignore and discard new information that conflicts with your biases, preconceptions and belief system.

Bandwagon: You disregard fundamentals. You think you understand “momentum.” You conclude that “so many” followers can’t possibly be wrong.

Confirmation: You’re not only critical of any news that contradicts your beliefs, you blindly accept any data that confirms beliefs.

Rationalization: You are superlogical and can marshal lots of evidence to back up whatever you first decide to buy, even if it’s based on limited logic and data.

Anchoring bias: You rely too much on readily available data, just because it’s available, even when you know it could be faulty.

House money: You treat winnings as if they belong to the house or casino. Then you take bigger risks, giving it all back, and then some.

Disposition effect: You tend to lock in gains and hang onto losses, selling shares in an up market, hanging onto losers too long, similar to loss aversion.

Outcome bias: You judge your decisions on results rather than the context when the decision was made. That’ll result in misleading you the next time.

Sunk costs bias: You treat money already invested in a stock as more valuable than future opportunities, so you often hang on rather than sell and reinvest.

Perfect behavioral storm: Separately, each bias is bad enough. Combined, they become bubbles, set you and wipe you out. Either way, quants and behaviorists can easily manipulate you into what they want, blowing bubbles and popping them without you ever knowing what’s happening … manipulating you like a mindless puppet.

OK, you probably have a rough count, and likely not that exact. No problem. Let’s say, for example, you estimate that out of this list of 25 known investors biases, you’ve made investment decisions that were irrationally based on 10 of these bad habits and biases.

So here’s how you can use the Handy-Dandy Investors Crash Loss Calculator to figure your losses in the next crash. Very simple to estimate: If you estimate you exhibited 10 of the 25 bad habits and biases in the past, that suggests a portfolio drop of 40%. And if Mr. Market only goes down 50%, like it did in the 2000 crash and again in the 2008 meltdown, your losses would be between 20% and 40% of your portfolio’s total value.

Of course the real value of this exercise is not the numbers game. Besides, if you’re gaming the system, it may be impossible to stop. But if you’re ready, then this exercise makes you aware of the fact that Mr. Market really is overdue a crash.

And more importantly, if you lose money again, it’s your fault. Yes, the problem is yours, it’s all in your head, your own behavioral biases, quirks, blind spots and bad habits, and not Mr. Market’s problem. He’s just doing what Ben Graham and Warren Buffett tell us he always does.

So, get your behavioral act together and prepare for the crash that’s dead ahead, with no biases or bad habits.

Paul B. Farrell is a MarketWatch columnist based in San Luis Obispo, Calif. Follow him on Twitter @MKTWFarrell.