Even the most optimistic stock watcher would have to admit that markets of late have shown bearish tendencies. The Dow Jones Industrials dropped 6.2% in 2000, having endured a 15-minute, 435-point sell-off in technology stocks - that's a fast 4.5% plunge - in midOctober. The Nasdaq fell even further, dropping 39% by year-end. Most analysts say it takes a decrease of at least 20% in price to constitute bear conditions. The Nasdaq certainly fits that criterion - and the drop in the Dow looks more bearish than bullish.

What should you do? Start by resisting the urge to try to time the market, pulling out before it dips further and returning when you think it's about to stage a comeback. Such efforts inevitably fail, according to Dalbar, a Boston-based investment research company, and help explain why the typical equity investor earned only 7.3% per year from 1984 through 1998 while the Standard & Poor's 500 returned an average of 17.9% per the same period.

Instead of timing the market, strive to maintain a stable portfolio mix of stocks, bonds, and cash equivalents that will hold its own in good times and bad. Then, at the sign of a bear, take the following four steps to protect your portfolio:

Find bad-news-resistant funds.
"In a down market, I don't think it's a bad idea to write a check to your favorite stock picker," says Russ Kinnel, a fund analyst at Morningstar.com. "You want someone who's got the contacts at the companies themselves." For most investors, the soundest place to get such stock-picking help is a mutual fund.

To get a sense of how well a stock fund might fare in a down market, check out a nifty resource on Morningstar.com called the "Bear Market Decile Rank," which grades all funds on their performance during past down markets. The lower a fund's ranking, the better; a fund with a bear market decile rank of 1 outperformed one with a rank of 10.

Back off from "bear funds."
Unlike funds that do well in bear markets thanks to experienced managers who make smart choices, so-called bear funds rely on unusual, often risky investment techniques designed to draw profit from a market drop.

The problem with these funds is that over time they tend to post negative returns.

Sheldon Jacobs, publisher of the No-Loan Fund Investment Newsletter, notes that bear funds' strategies usually work well only during short-term, precipitous drops in the market, not when the market is flat or down modestly. As a result, Jacobs, says, "these funds are completely unsuited for being held for the long term." And don't think about holding bear funds for the short term, an approach that smacks of market timing.

Pad your portfolio with cash and short-term bonds, but don't go overboard.
Jonathan Pond, financial planner and author of Your Money Matters, usually recommends a 70%-20%-10% asset division among stocks, bonds, and cash. If you can't stomach bear-market volatility or simply want to lock in favorable returns, he says it can make sense to drop the stock share to 60% and boost the cash portion to 20%. But avoid putting any more than that into cash, because you would dramatically alter your asset allocation and risk derailing your long-term investing goals. "The market is surprisingly resilient, so it pays to keep most of your money in the stock market," Pond says.

Now is also a good time to buy certain kinds of bonds. Short-term instruments are paying exceptionally high yields; three-month Treasury bills recently hit 5.01%, compared to just 4.86% on five-year notes. But short-term yields are likely to drop since the Federal Reserve is expected to continue lowering interest rates. So to hold onto a decent yield for a decent interval, you'll have to diversify your maturities.

Seek out the next winning sector.
Ken Stern, president of Asset Planning Solutions, a money management company based in San Diego, urges investors to consider a strategy called sector rotation. He notes that bear markets often begin with the implosion of a sector that's grossly overvalued. In this market, it's not hard to identify technology as one place where prices got out of hand and crashed. Stern's strategy is this: Sell stocks and funds in overvalued sectors while buying into sectors that, by contrast, are undervalued compared to their historical averages.

To find the winners, Stern says, "look for growing sales, big profit margins, and increased earnings. Another thing I look for are analysts who are upwardly revising their estimates of a company's growth. In a down market, that's really saying something." Stern points to financial services and health care stocks as two recent buying opportunities.