So much for the 'reliable' fourth-quarter rally

• No new trades.

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It used to be that the fourth quarter was the biggest no-brainer in global markets. In fact, I've even called it "the last free lunch in global investing." Well, 2007 proved me wrong. With global markets trading down for the first time in Q4 since the dot-com collapse in 2000, it looks like the time for this free lunch is over.

My Strategy Lab global-megatrend portfolio has experienced some remarkable ups and downs. Recall that it was whipsawed out of all but one position within weeks of the launch of the contest in July. I re-entered the market in September and in October prepped the portfolio for a year-end rally that has remained a figment of my hope and imagination. With those two bets in place, there's been little to do or say since.

4 lessons from the front

So what lessons can we draw from the performance of the portfolio as we head into the homestretch of the contest?

• 1. Global investing is game of feast or famine. Global markets can experience incredible upward runs over short periods of time. We experienced that after the market bottomed on Aug. 16. And boy, it felt good when the portfolio went from 18% down to the head of the pack, on the back of a handful of concentrated picks. But it didn't mean much without the expected follow-through. But that's nothing new. Read accounts of how quickly the various panics that gripped the markets in the 19th century spread throughout the world even before the invention of the telephone, and it's easy to conclude that there is little new under the financial sun.

• 2. "Baby out with the bath water" behavior prevails in markets today as much as it ever has. When information travels at the speed of light and the click of a mouse, markets move in lockstep -- both on the upside and the downside. But that's nothing new. Read accounts of how quickly the various panics that gripped the markets in the 19th century spread throughout the world even before the invention of the telephone, and it's easy to conclude that there is little new under the financial sun.

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• 3. "Buy and hold" beats trading "in and out." I made two big "calls" in trading the global megatrend portfolio over the course of the contest. First, I went back in full force with three of my top picks after the September rate cuts. I knew that only concentrated (and correct) bets could get me back in the contest. That worked well. Second, I diversified those bets once I bet (incorrectly) that markets had settled and that we were set for the traditional end-of-year rally. Sadly, only Potash of Saskatchewan (POT, news, msgs) has rallied since that switch. But here's the lesson. The result of my trading portfolio is a 5% decline. Had I just stayed put -- and ignored my stops back in August -- the portfolio would be at $101,304. Not great, but at least in positive territory.

• 4. Change in markets is the only constant. As much as I stress the long-term themes in megatrend investing, even megatrends run out of steam. The challenge is when to distinguish between the "noise" of a mood swing-induced sell-off and the "signal" of a change in trend. This happened earlier this year in my trading services with the "outsourcing megatrend," when the stock price of one of my former top picks, Cognizant Technology Solutions (CTSH, news, msgs) collapsed on the back of rising labor costs that threatened the whole India-outsourcing megatrend. The same may be happening with DryShips (DRYS, news, msgs) in our current portfolio, which despite having stellar performance over the past two years, has broken down on the back of fears of slowdown in the global economy. Only time will tell. But DryShips also offers a lesson in position sizing. Because the stock was always incredibly volatile, the size of our position in the stock was smaller than any other position in the portfolio. Hence as bad as it has been -- down 33% since we entered it -- it has yet to hit its wide stop. So far it has cost us about 4% of portfolio performance. We knew our worst-case scenario going in. Not that it's ever pleasant when it happens.

Global markets still the place to be

Here's something that might surprise you. Even with all the turmoil in the markets, I believe that investing in global markets gives me an unfair advantage. Sure, you can trade in and out of some "hot" U.S. stories to generate big returns. For me, that's just too much hard work.

Had you done nothing but held the Brazilian ETF (EWZ, news, msgs) over the past five years, you'd have made 11 times your money. Millicom International (MICC, news, msgs) in our current subscriber portfolio, was a 100-bagger (!) over the past five years. And it's probably still a three-bagger today. If you could discipline yourself to look at your portfolio only on Dec. 31, you'd always wake up New Year's Day with a smile on your face. It's just the day-to-day volatility, the noise, that kills you.

So what about my current picks? Except for possibly DryShips, all of the megatrends behind each stock remain intact. And once you get the big picture right and get that pesky "signal versus noise" problem handled, global-megatrend investing starts to look a lot like Warren Buffett's credo of "lethargy bordering on sloth." It's just a shame that this was not made more evident over the course of this contest.

For more insights into my take on the markets, including "The Death of the Dollar," "The China Stock Bubble" or "The Perils of Prediction," visit TheGlobalGuru.com to sign up for my free weekly newsletter. Also, keep an eye out for me in the mornings on Fox Business, where I'll be chiming in with my views on the markets from both Manhattan and London.