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, Freddie Mac, and Citigroup 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 nearly 18% over the past year, substantially trailing the market. And it could get worse. At its last report, the fund had big positions in underperformers such as Dell (Nasdaq: DELL), Western Union (NYSE: WU), and Bristol-Myers Squibb (NYSE: BMY).

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 at the beginning of the year.

That's right: Amid all this turmoil, the generally staid Muhlenkamp is excited -- and he's increased positions in Boeing, Kinetic Concepts (NYSE: KCI), and Harris Corp. (NYSE: HRS). These stocks have been rattled hard recently 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 Investment Company Institute, more than $35 billion has flowed out of stock mutual funds since the beginning of the year.

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. More than 80% of respondents to a recent New York Times/CBS News poll said they thought the economy was "pretty seriously...on the wrong track."

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.

This article was first published on Jan. 17, 2008. It has been updated.

Tim Hanson owns shares of Muhlenkamp but no other securities mentioned in this article. Muhlenkamp is both a Champion Funds pick and a Hidden Gems recommendation. Dell and Western Union are Inside Value choices. Dell was also recommended by Stock Advisor. The Fool's disclosure policy is a constant fiddler, in even the direst of situations.