Even as he's caught square in the sights of this terrible market, noted money manager Richard Pzena exudes confidence -- despite his big bets on Fannie Mae (NYSE: FNM), Freddie Mac (NYSE: FRE), and Citigroup (NYSE: C) thus far looking nothing short of stupid.

If the problems surrounding Fannie, Freddie, and Citi "prove not to be fatal, as we suspect, then over the long term we're going to make a lot of money," Pzena says. 

But Pzena likely agrees with the recent words of the famous Bill Nygren -- another manager lately wracked by underperformance. "We don't like how the stocks have recently performed," Nygren wrote to shareholders, "but we like the long-term positioning of the businesses in which we have invested."

That better be some good long-term positioning
Oakmark Select (OAKLX) is down more than 12% over the past year, substantially trailing the market. And it's getting worse. Intel (Nasdaq: INTC), a top 10 holding, was down more than 12% yesterday after releasing earnings.

But neither Pzena nor Nygren is wavering from the strategies that have made them wealthy.

They're not alone ...
Ron Muhlenkamp is another noted money manager mired in underperformance -- his Muhlenkamp Fund (MUHLX) has trailed the market over the past two years. Yet he, too, is confident. "We are now, once again, at the beginning of a business/investment cycle, giving us opportunities we haven't seen in six to seven years," he wrote earlier this month.

That's right: Amid all this turmoil, the generally staid Muhlenkamp is starting to get excited -- and his significant positions in American International Group (NYSE: AIG), BHP Billiton (NYSE: BHP), and Cisco Systems (Nasdaq: CSCO) prove it. These stocks have been rattled hard over the past three months and now trade at or near historically low multiples.

... but they are in the minority
Of course, few individual investors are taking advantage of these opportunities. According to data from the Leuthold Group (and reported in The Seattle Times), outflows from U.S. stock mutual funds are at an all-time high -- with more than $50 billion withdrawn from the market since May.

So as stocks get cheaper, investors are ... selling.

Opposite Day was Dec. 22!
That doesn't make a lot of sense (we're taught to "buy low," after all), until you consider that investors are scared witless.

Whether it's because we're waiting for the other subprime shoe to drop, or for China to sell our dollars into oblivion, faith in the economy is at a 15-year low. Just 19% of respondents to a recent New York Times/CBS News poll said they thought the economy was "headed in the right direction."

These folks aren't imagining things, but they are letting short-term fears prevent them from making money in the stock market. As Pzena notes, "Shares don't trade at these valuations unless this kind of stuff is going on."

But the only way to make a lot of money is to be among the few willing to buy at these prices.

The more things change
We're among that few in our Motley Fool Hidden Gems small-cap investing service, and we're taking advantage of current volatility to recommend low-cost positions in some of our favorite long-term picks.

To see our top picks for new money now, click here to join Hidden Gems free for 30 days. There's no obligation to subscribe, but if you're not counting your gains 10 years from now, don't say Pzena didn't warn you.

Tim Hanson owns shares of Muhlenkamp but no other securities mentioned in this article. Intel is a Motley Fool Inside Value recommendation. Muhlenkamp is a Champion Funds pick. The Fool's disclosure policy is a constant fiddler amid even the most dire of situations.