"Buy and hold" is supposed to be the way to long-term wealth.

No less than investing legend Warren Buffett advocates this method of investing in a company's future performance and profits, because it focuses on the reasonable -- and researchable -- fundamentals of a company's products, strategy, and management, instead of capricious valuing by millions of traders.

Add that to reduced trading costs and taxes, and, assuming reasonably good stock picks -- voila! Long-term wealth.

But then 2008 came along and put a serious smudge on that picture. Investors have given a hefty chunk of that long-term wealth back, and with a bleak near-term economic outlook, it doesn't look like those gains are coming back any time soon. Does that mean buy and hold is dead?

Nope. It only means you've got to take buy and hold one further step: buy and hold and buy.

We're not in Kansas anymore
The bear markets of recent memory have been relatively short, shallow affairs. And because of that, your portfolio would recover fairly quickly -- and with little effort on your part.

According to The New York Times:

Since 1982, the Standard & Poor's 500-stock index has recouped about 88 cents, on average, of every dollar lost in a bear market by the end of the first year of the subsequent bull market. By the end of the second year, that dollar would have been recovered, and then gone up an additional 18 cents.

But we can't count on that happening now. Why? Because the market has lost nearly 40% in 2008 -- substantially more than the bear markets we've seen in the past quarter-century.

Since World War II, the market has climbed 38% the first year of a bull market, 11% the second, and 4% the third, according to the Times. In previous post-bear rallies, that was enough not only to recover what you lost, but to get ahead. But if the market simply goes up from here in this same pattern, after three years, a $100,000 pre-bear all-equities portfolio will be worth only $96,000.

In other words, even if this bear market is over, and even if you're entirely in equities, and even if we're on the cusp of a multiyear rally -- all of which are best-case scenarios -- you still won't break even.

If you really want to get your portfolio back to where it was before the market turned south -- much less to where it would have been if the market hadn't turned at all -- you'll have to start buying.

Buy and hold … and buy
This is, after all, the best investing opportunity in 35 years. Famed investors from Buffett to Martin Whitman have proclaimed now a great time to be buying stocks -- but that doesn't mean everything is a good buy. While you might be tempted to scoop up big names whose share prices have been slashed by 30%, 40%, or 50% -- or more -- tread cautiously.

Many big-name stocks deserve their haircuts. Citigroup (NYSE:C) and Goldman Sachs (NYSE:GS), to name but two, participated in the risky lending and leveraging that got us into this mess. Other companies' problematic business models and strategies blew up when the economy did -- General Motors (NYSE:GM) springs to mind.

Then there are the retail companies, which have been beaten down because consumers -- facing rising unemployment and limited access to credit -- are tightening their belts and cutting back on spending. Even the best retail stock is likely to suffer in a macroeconomic environment like this one, and some pretty good ones, such as Best Buy (NYSE:BBY), Tiffany (NYSE:TIF), Starbucks (NASDAQ:SBUX), and Gap (NYSE:GPS), have not been spared this year.

In other words, a cheap stock price isn't enough. You want a stock that will perform well from this point forward, and that means finding companies with the following:

  • Superior business models
  • Strong and lasting competitive advantages
  • Margins ripe for expansion
  • Growing market opportunities

In this market environment, it also means finding companies that produce goods and services that companies and consumers need -- not merely things they want.

The Foolish bottom line
Your portfolio can recover from this bear market -- but it's going to take some attention from you. Buying strong and promising companies now will help you recover those losses -- and get ahead.

But if you'd like to help it recover even faster, consider adding tools like options trading and exchange-traded funds (ETFs) to the mix. They not only help you generate more income, they can also reduce your portfolio's volatility and increase the benefits of diversification.

Those are the tools we're using -- and teaching -- at Motley Fool Pro, a $1 million real-money portfolio designed to combine core holdings, options, and ETFs to make money whether the market is up, down, or stagnant. If you'd like to learn more about the service -- and how you can use these tools to improve your own portfolio -- just enter your email in the box below.

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.