The market is down.

If you didn't know, we salute you. The financial media (this website included) have spent a considerable number of keystrokes chronicling the fall, forecasting the (near) future, and preparing for what could be a prolonged bear market.

Evidence from the anecdotal to the empirical shows that investors are spooked. As The Washington Post reported recently, market volatility had investors moving into cash through this summer:

Some $45 billion flowed into retail money market mutual funds alone over the first half of the year, according to Money Fund Report, and total assets in those funds are up nearly 12% over a year ago.

Money on the table
The move to money market mutual funds is understandable. After all, studies show that the pain of losing money is far stronger than the joy of making it. Yet moving out of stocks and into cash because stocks are down is not a winning investment strategy. While we think it protects us from losses, it actually preventsus from making serious money.

Imagine, for example, the financial fate of the individual investor who finally decided to buy stocks near the end of 1999 -- after watching his or her friends make money hand over fist for years. During the following three years, the market lost nearly 40% of its value. Sickened by the red, let's say the investor sold at a loss and moved what was left into cash investments.

But then, the market started to turn. And since 2002, the market has moved up 40%. With newfound confidence, let's say the investor bought in again in January 2006. And now ... this.

This get-in-get-out strategy is the polar opposite of "buy low, sell high," which, although a mystical and annoying investment mantra, should be the goal of all stock investors. How can you expect to buy low when you only come off the sidelines after bull runs?

The problem with pessimism
Don't misunderstand: Having cash on hand isn't always bad. Warren Buffett has held onto gobs of cash for a few years now, but it isn't because he's scared of the market's prospects. Just the opposite, actually. Buffett is a contrarian investor -- he waits for the market to get crushed and for stocks to become undervalued before he buys.

Like Buffett, U.S. companies are also keeping a lot of money on their balance sheets right now, but for a very different reason -- they're becoming more risk-averse.

In a recent issue of Forbes, Steve Forbes wrote: "Not since 1960 has cash made up as large a part of the corporate balance sheet as it does today." He theorized that this is because in today's jittery market, companies don't want to make major capital expenditures that could hurt short-term earnings. Any sign of weakness, it's believed, will cause a company's market value to be sliced and diced. For evidence supporting this theory, take a look at Whole Foods (NASDAQ:WFMI), a company whose stock moved down substantially when sales came in a bit shy of analyst expectations.

Whole Foods is hardly an anomaly. In the past few months, generally stable giants such as Yahoo! (NASDAQ:YHOO), eBay (NASDAQ:EBAY), Marvell Technology (NASDAQ:MRVL), and Seagate Technology (NYSE:STX) all felt the market's wrath. The market's downward pressure has been even more severe for smaller companies such as PlanetOut (NASDAQ:LGBT) and Hibbett Sporting Goods (NASDAQ:HIBB).

The real down-market solution
If you're sitting on the sidelines right now without the confidence to keep investing in equities, study the history of the U.S. stock markets. Even with all of their dips and drops, our markets have proved to be an incredible economic success. Over the past 75 years, equities have delivered an astounding 10.5% annual return.

And you -- yes, you -- can do even better than that if you hang on during drops and keep adding money to your investments when the prices are low. Here's how:

  1. Find superior businesses.
  2. Hold them for the long haul.
  3. Add new money to them regularly.

That's how Fool co-founders David and Tom Gardner are recommending their Stock Advisor members profit from this down market. And it's sound advice -- particularly because they've identified a list of more than 60 superior stocks worthy of your investment dollars.

Great minds think alike
John Templeton, whom Money magazine called "arguably the greatest global stock picker of the century," famously said that "the best time to invest is when you have money." That's because, in the end, time matters more than timing.

So, if you have the money, now's a great time to invest. And Stock Advisor can help you find the right places to do it; the service's picks are collectively beating the S&P 500 by more than 37 percentage points. Click here for a free 30-day trial.

Tim Hanson and Brian Richards have "Janie's Got a Gun" stuck in their heads, for no apparent reason. Both own shares of Whole Foods. Whole Foods, Yahoo!, and eBay are Stock Advisor picks. The Fool has a disclosure policy that would mock and deride the Energizer bunny.