Is It Time to Cut Our Losses?

"What's up with this market? Where's it headed? What do we do now?" 

I have my theories. I've shared a few in recent columns, and I'll share one more today. But there are two much bigger fish you'll want to hear from first.

"What's The Motley Fool's take?"
I get that a lot. The answer is complicated. Fools don't fret "the market" on a day-to-day basis -- much less boil it down to a unified "Fool take." What you're about to read is as close as you'll get.

I lifted it from a letter sent by Motley Fool co-founders David and Tom Gardner to members of their Motley Fool Stock Advisor newsletter service. I think you'll find it useful, but first, let's back up. Why are we even having this conversation?

This market bites, that's why. And I'm not whining about E*Trade's (Nasdaq: ETFC) fall from grace or Washington Mutual's (Nasdaq: WM) 70% washout and recent dilutive "infusion." That we can understand. I'm whining about the seeming senselessness of it all -- the nagging feeling that nothing is working, and that we should throw in the towel.

There's nowhere to hide!
Of course, E*Trade, Washington Mutual, and most things financial are the tips of the iceberg. Housing stocks bounced, but they're still a disaster. But even that makes sense, since the current mess all started with a credit crunch.

Retailers are struggling, too. And even that makes sense, given the creeping use of the "R" word. But oil services ... enterprise tech ... even the so-called defensive plays. There's more at work here than the "R" word (in my view, that's the second most dangerous red herring for long-term investors).

No, this has the trappings of the "B" word, the No. 1 spectre troubling investors today. Yes, I mean bear, as in bear market -- more specifically, our infatuation with the idea of it, and what that might make us do. And who can blame us? Just look at the carnage so far:

It's enough to make you want to sell the next bounce, clear out, and move to cash, right? That's why I wanted to pass along this advice from David and Tom Gardner to help you decide. Read the letter in its entirety, and decide for yourself whether it's of any value to you ...

Dear Fools,

It's tough to remain focused and Foolish as an investor when the market throws us a seemingly endless run of triple-digit losses. Where's the fun in losing money?

But having invested through markets like these before, and having studied the master investors who've seen more of them than we have, all of our newsletter advisors urge you to remember one thing: With apologies to Dickens:

"When it's the worst of times ... it's the best of times." Whether the market is up or down, our aim is to find superior businesses and buy them when they are cheap. Right now, we see an exciting opportunity for investors who realize that a rational temperament and a long-term focus are the advantages we hold over Wall Street's panicky, short-term money.

Of course, we at The Motley Fool like to see our stocks go up as much as anyone else. But we frankly don't care so much when those gains come. We know markets are at times irrational.

But while short-term conditions can fog an investment thesis and confound day-traders, we're far more concerned with the long upward climb. That doesn't mean we put our heads in the sand.

In tough times, we pay attention, we study, we review, and we ask ourselves if our original thesis remains intact. If our thesis no longer holds, we'll part ways and move on.

But we don't let our emotions override our intellect. We don't mindlessly join the mass exodus. We benefit from it. It might not feel like it when you look at your portfolio, but it's a great time to be an investor.

As always, we're available on our community's message boards to talk stocks, strategy, or just commiserate. We look forward to seeing you there!

Foolish best,

David and Tom Gardner
Co-Founders, The Motley Fool

"A great time to be an investor"?
It shouldn't surprise you to hear that I'm with David and Tom on this one. As a long-term investor, I frankly don't care whether we're in a recession or a bear market. In fact, I hope we are.

I've made my best investments during bear markets -- even during recessions (more precisely, when economists were declaring that we were in one). And I'm not alone. David and Tom started Stock Advisor in March 2002. Now, there was a tough market, I assure you.

Good for them -- and for their subscribers. The independent Hulbert Financial Digest confirms that David and Tom's recommendations have earned 20.4% per year over the five-plus years since. The market, meanwhile, has returned just 7.4% per year.      

What accounts for the extra performance?
I have my theories, but I'd like you to decide for yourself. If you figure it out, let me know. After all, I was a buyer in 2002, too. And while I'm fairly certain I've done better than average, I haven't managed to earn 20% per year. Have you?

If not, consider trying Stock Advisor for 30 days free. Check out all the picks and the full rationale behind them, including David and Tom's top five recommendations for new money right now. Take a full month to figure out how they've nearly tripled the market average, and whether you want to join them.

I'll be right here, shopping for bargains. Meanwhile, think long and hard about cutting and running. Even better, keep buying America's best companies -- and take a moment to find out more about how you can try Stock Advisor free for a month. Click here now.

This story originally ran Feb. 22, 2008. It has been updated.

Paul Elliott doesn't own any companies mentioned in this article. Microsoft and Intel are Motley Fool Inside Value recommendations. Washington Mutual is an Income Investor pick. You can view the entire Stock Advisor scorecard immediately with your free trial. The Motley Fool is investors writing for investors.