Three of the five best days the Dow Jones Industrial Average has ever experienced occurred in one 10-day stretch in 1987: Oct. 20 (up 5.88%), Oct. 21 (up 10.15%), and Oct. 29 (up 4.96%).

But that was not a great week for investors. It came in the wake of Black Monday -- Oct. 19, 1987, the single worst day in the Dow's history -- when, by 4 p.m. ET, the market became $500 billion less valuable. The Dow dropped 22.61% that day and followed it up a week later with an 8% drop -- the second-largest single-day drop in history.

When the dust settled, the biggest of big names had taken a bath. PepsiCo (NYSE: PEP), Wells Fargo (NYSE: WFC), and Abbott Labs (NYSE: ABT) each lost 15% or more of their value that month.

We bring this up not only because we recently passed the 20th anniversary of Black Monday, but also because the investing landscape that preceded the current "correction" was strikingly reminiscent of those days. The term bubble was omnipresent. Corrections were predicted, followed by opposing bullish predictions driven by fundamentals.

Now? Recession is the word du jour. And stocks? Well, depending on which source you read, it's either the greatest time to buy or the greatest time to sell that anyone can remember.

Bring on Black Monday?
So, what's it all mean? Full disclosure: We're not sure it's possible to make much sense out of conflicting short-term signals.

But whether next Monday will be another "black" trading day or one of the best in history, there are only three things that matter when it comes to investing successfully:

  1. The quality of the companies you buy.
  2. The price at which you buy them.
  3. The length of time you own them.

For those reasons, patient long-term investors should be eagerly awaiting the next Black Monday even more so than the next Google or whatever comes along.

Say what?
Let's face facts: There will be but a handful of the next great growth stocks, and the odds of picking one are ... not good. But when the next Black Monday truly hits, hundreds of quality companies will suddenly become available at prices that virtually ensure success for long-term-minded investors.

That's what history has taught us. As Wharton professor Jeremy Siegel wrote, there is one reason why Standard Oil was a better investment than IBM, despite IBM's superior growth: "Valuation, the price you pay for the earnings and dividends you receive."

The most expensive book ever written
The Internet bubble was another painful reminder of that lesson. Our research showed that if you took a stake in each of the stocks highlighted in Greg Kyle's 100 Best Internet Stocks to Own when it was published in the spring of 2000, and you then held those stakes through October 2007, you'd have lost 62% of your capital.

For a book that cost about $15, that hurts. Amazon.com, F5 Networks (Nasdaq: FFIV), and 11 other companies simply earned a positive return, but 18 companies on that list went entirely bankrupt.

The culprits? Quality and valuation. Many were poorly run and profitless companies that were nonetheless selling at stratospheric levels. Consider that even well-run tech companies such as Dell (Nasdaq: DELL) and Infosys Technologies (Nasdaq: INFY) disappointed shareholders because they were simply priced too aggressively. (We should note that neither Dell nor Infosys was included in Kyle's book.)

And that's the irony of the chase: You're far more likely to find the next big bust than the next big thing.

But that was seven years ago, at the height of the "Tech Bubble." It's got nothing to do with today. Right?

Right?!
Look at a long-term chart, and you'll see that the Dow and S&P 500 are near all-time highs, despite the recent market sell-off. We're seeing the media report on bubbles in China, India, and even the tech sector again. But remember, three things matter for a successful investment plan:

  1. The quality of the companies you buy.
  2. The price at which you buy them.
  3. The length of time you own them.

If you insist on buying quality companies at good prices for the long term, it's tough to overpay, even in a bubble.

Easy-peasy
We're not trying to make successful investing sound easy. It's not. It takes time, effort, and resources.

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This article was first published Oct. 19, 2007. It has been updated.

Neither Tim Hanson nor Brian Richards owns shares of any companies mentioned. Both Tim and Brian wear plaid on the outside, 'cause plaid is how they feel on the inside. Amazon.com and Dell are Motley Fool Stock Advisor recommendations. Dell is also an Inside Value pick. The Motley Fool's disclosure policy is writing checks its body can't cash.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.