With the market on a circus ride, I think we need to call time-out and have a little conference on the mound.

We need to be sure we all have the game plan because it's intense out there and we need to keep our perspective.

One thing for sure is there is so much noise that it makes it hard to even think, much less decide what to do. But the noise is just noise; it's not the game itself. Like a pro athlete, you have to ignore the noise and remain focused.

Ask yourself, how would you be acting if there were no noise?

Review the Game Plan

Now, back to the time-out while we take a look at the defense.

The three biggest investing mistakes you can make now demand attention: (1) Timing, (2) Incorrect Asset Allocation, (3) Poor Diversification.

Let's look at these one by one:

Timing: I could cite at least three dozen comments from academics and noted investment professionals who say the only real answer is to hold through times like this.

And they are right. To sell in a market such as this one essentially locks in a loss. It's like quitting in the middle of the game.

If you sell, you trap yourself into then having to make a timing move as to when to get in again. No one who backs out at the wrong time gets back in at the right time.

That's because the wrong time is often quickly followed by the right time. But the investor's emotions have not gotten over the trauma and he sits on the sidelines.

Selling now will make you feel better, but when things bounce back you will regret your mistake.

Asset Allocation: I highly respect the teachings of those seasoned veterans who say to hold.

But just between you and me, it can be tough to hang in there. And I've done it once already in 2000-2002. Furthermore, if you want to capture any rebalancing bonus, you not only have to hold, you have to rebalance into equities now.

A key point to keep in mind is that your allocation to stocks determines over 80% of your risk.

You can roughly figure your worst loss scenario is about half your equity allocation. This is based on historical losses in the 1973-74 bear market.

I am not suggesting the current market situation will end up with losses equal to the ‘73-‘74 bear market. What I'm saying is that you should always be prepared for worst-case possibilities.

Now, I have to be honest and let you in on a little secret. Back in 2002 I did adjust my asset allocation. I moved it from 50/50 to 45/55 (stocks/bonds). For some reason, that slight shift made all the difference. Yes, I know it sounds quite irrational. But it made me much more comfortable.

I'm still at 45/55 and I don't really know if it's due to the AA change or the fact that I've been through this kind of thing before, but I know the AA is correct and I can handle the potential loss.

It is very important that asset allocation and emotional tolerances are matched. If you now find your emotions are causing sleepless nights, then make an adjustment. You may find that a change of even 10% gets you a good night sleep.

Once you have found your comfort zone, consider it permanent.

Diversification: Now, let's make sure our defense is aligned properly.

Proper diversification across asset classes is an essential risk management tool and may reduce your downside risk a little more. Being diversified can be compared to a baseball defense where one team is playing an opponent they know nothing about.

What do they do? They set the defense in a classic neutral arrangement that provides the best odds of limiting hits when nothing is known about the tendencies of the opposing batters.

The same holds true in the market. Each and every day, investors face unknown risks. So it makes sense to hold a portfolio that provides the best odds in all situations.

And that means investing through a diversified portfolio with no large bets in any one area.

Avoid the big mistakes, stay in the game and you will have a winning percentage year in and year out over the course of time.