"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 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 returning anytime soon. Does that mean buy and hold is dead?

Nope. It only means you've got to take buy and hold to its next logical step: Buy and hold and buy.

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

In fact, 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 40% since its highs in October 2007 -- substantially more than the bear markets we've seen in the past 25 years.

Historically, the market climbs 38% the first year of a bull market, 11% the second, and 4% the third. In previous post-bear rallies, that was enough not only to recover what you lost, but also to get ahead.

But if the market simply goes up from here (substantially off its lows) in this same pattern, after three years, a $100,000 pre-bear all-equities portfolio will still 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 or already in 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 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
It's tempting to scoop up big names that have seen their share prices slashed by 30%, 40%, 50% -- or more. This is the best investing opportunity in 35 years, after all. But that doesn't mean that everything is an equally good buy.

Many big-name stocks deserve their haircuts. Companies like Citigroup (NYSE:C) participated in the risky lending and leveraging that created the housing crisis, and their balance sheets and TARP obligations remain unclear. Companies like General Motors saw their problematic business models and strategies blow up when the economy did.

Others -- like Best Buy (NYSE:BBY), Harley-Davidson (NYSE:HOG), and Gap (NYSE:GPS), not to mention companies like MasterCard (NYSE:MA) and American Express (NYSE:AXP) -- have been beaten down because consumers are facing rising unemployment and limited credit. Even the best retail stock is likely to suffer in a macroeconomic environment like this one.

In other words, a cheap stock price isn't enough. You want a company 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.

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, but 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 -- which we're opening for just a few days in 2009 -- enter your email in the box below.

Fool editor Julie Clarenbach owns none of the securities mentioned in this article. Best Buy and American Express are Motley Fool Inside Value recommendations. Best Buy is also a Stock Advisor pick. The Motley Fool owns shares of Best Buy and American Express. The Motley Fool's disclosure policy holds on forever.