Let's get this straight: Selling your stocks simply because the market is going down is not a winning investment strategy.

Mock agreement, meet indiscriminate selling
That seems obvious, right? Problem is, it's exactly what's been happening during the late-summer volatility.

Consider this recent Washington Post story: "Since the start of July, investors have removed about $15.6 billion from U.S. equity funds, according to TrimTabs Investment Research." That outflow, by the way, is the largest since September/October 2002 (more on that later).

Where's all that money going? Surely some of it is being buried out back with the bird seed. But the Post indicates that investors are pulling money out of stocks and moving into bonds -- bond funds have seen record inflows in 2007.

Shelter from the storm
Even more folks, though, appear to be moving into cash. According to The Wall Street Journal, money-market fund net assets reached $2.72 trillion in the week ended Tuesday, Aug. 21. That's a new record -- breaking the mark set one week earlier.

That story begins with some disturbing news: "As investors sought refuge from the markets' turbulence ..."

Anyone smell market timing?
While institutions poured $42 billion in last week, retail investors added $27 billion.

This same thing happened just last year -- mid-summer, investors reacted to market volatility by shifting out of stocks and into cash. And you know what? That was a pretty good time to be adding new money to stocks -- from July 19 (when that column was published) to the present, the S&P 500 is up 17%.

Let's go back even further. Recall that July and August are shaping up to have the highest outflows since the fall of 2002 ... which was also a pretty darn good time to buy stocks. The SPDRs (AMEX:SPY) S&P-tracking index is up 85% since then, while several high-profile companies are up even more: Apple (NASDAQ:AAPL), for example, is up more than 1,700%. BlackBerry-maker Research In Motion (NASDAQ:RIMM) is up more than 5,000%!

What this means today
So is now a buying opportunity or not? Here's my sure-to-be-unsatisfying opinion: That answer depends on the companies you're researching. This much is clear: If you own quality and have a long-term outlook, today is definitely not a selling opportunity.

Sellers of quality are too focused on what legendary fund manager Martin Whitman calls "market risk." In his most recent shareholder letter, Whitman explains that in his fund (Third Avenue Value), he ignores market risk altogether:

Fluctuations in market prices are mostly a random walk with changes in market prices not in any way a measure of long-term investment risk, or investment potential. It is as Ben Graham used to say, "In the short run the market is a voting machine. In the long run the market is a weighing machine." Most competent control investors, again like Warren Buffett, pretty much ignore market risk also in that little, or no, weight is given to daily, or even annual, marks to market for portfolio holdings.

See, market risk is quite different from "investment risk." The former is inevitable, the great investors tell us. We'd do well not to fret over weekly, quarterly, or possibly even annual gyrations.

How can you ignore market risk? Easy. Stop checking your stocks so frequently.

Reduce investment risk by:

  • Buying high-quality companies.
  • Buying them at reasonable prices.
  • Planning to hold them for a period of five years, a decade, or forever.

Rainbows and kittens
There are several high-quality companies trading at reasonable prices. A few to kick-start your research: Citigroup (NYSE:C), Alcoa (NYSE:AA), and Yahoo! (NASDAQ:YHOO), which are each 15% or more off their 52-week highs.

Alternatively, for a list of Fool co-founders David and Tom Gardner's top five stocks for new money now, check out our Stock Advisor service.

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Brian Richards does not own shares of any companies mentioned. He also does not own a Shetland pony. Yahoo! is a Stock Advisor recommendation. Third Avenue Value is a Champion Funds recommendation. The Motley Fool has a disclosure policy, outlined here.