I won't sugarcoat it. Investors are nuts.

And not just the fast traders on Wall Street. I mean you and me. We're all nuts, and I'll prove it.

If you liked it at $100 ...
You know the shtick. "If you liked Corning (NYSE:GLW) at $110, you gotta love it at $50." I remember hearing that one on New Year's Day 2001. Two years later, it was down another 97% to a buck and change. And Corning wasn't alone.

As you'll see in the horrific table below, the same thing happened to ModusLink Global Solutions (NASDAQ:MLNK) and Ciena (NASDAQ:CIEN), among other popular names of the time. Could the same thing happen to today's fallen angels? Sure. Will it happen? Who knows?

Either way, we'd be nuts to ignore the lessons we paid so dearly to learn from the last market crash, right? Not so fast. Here's why I'm getting greedy instead.

You should probably own stocks
I have to own stocks. I'm about as likely to switch to bonds and gold as I am to take up competitive bridge -- at least for the next 20 years or so. And here's the catch for folks like us.

If we want to own stocks, we have to buy stocks. You can't get around it: To be a stock investor, you have to be a "net buyer" of stocks over your lifetime. It's that simple.

Of course, we could sit on our hands and wait out this volatility. But what exactly are we waiting for? We can only guess how today's prices will look to us tomorrow, but we know that stocks are a heck of lot cheaper now than they've been in years. And that the long-term trend for stocks is higher.

How to catch a falling knife
OK, it's time we looked at that table. But before we do, I'll warn you again -- it's scary. Scary enough to prevent you from having gotten burned in 2001? Sure, but it's even scarier for another reason.



Jan. 2001

Subsequent Fall to Bottom













Time Warner (NYSE:TWX)




Prices are split-adjusted.

You read that right. Even after their stomach-turning initial plunges, every one of those stocks fell an additional 70% to 96% between January 2001 and their respective bottoms somewhere in 2002 or early 2003. I told you it was grim.

Now it gets really scary
If you could have looked into the future and glimpsed that table in March 2000, it might have spared you some pain. But what about when the market plunged 39% in 12 days back in October 1987? Or when stocks "cratered" in 1991 ... or the dozens of other times stocks pulled back 20% or more?

You see where I'm going with this, right? It's almost impossible to call a bottom perfectly. And it has always paid over the long term to buy when stocks are down. Most important, once you get spooked by a market like this, it's hard to get unspooked. In other words, if you sit this market out and think you'll get back in later -- well, don't count on it.

That's why obsessing over that table I just showed you is dangerous. Not only could it prevent you from picking up some terrific bargains during this sell-off, it could keep you on the sidelines while everybody around you gets wealthy in the coming bull market. If you ask me, that's worse than trying to catch a thousand falling knives.

So, where are we now?
I honestly don't know. The past few months have been brutal, market-wide. If you had told me a year ago that Bank of America (NYSE:BAC) and General Electric (NYSE:GE) would be trading where they are now, I'd have said you were nuts.

But this isn't March 2000 or even January 2001. Remember, every stock in the table you just saw had run up tenfold before heading south. We didn't know for certain we were in a bubble then, but we did know that stocks, especially tech stocks, were way more expensive than they'd ever been before.

Is that the case today?
I don't think so. Not even for the market-beating small-cap value companies Bill Mann and Seth Jayson are sharing with members of their Motley Fool Hidden Gems newsletter service right now.

Now, I'll be frank. Over the past few months, even the best of these stocks finally came in a bit and gave us a second chance to buy. Famed money manager Marty Whitman calls this the buying opportunity of a lifetime. I think he's right.

That's why I say it's time to get greedy. And why I have my eye on the Hidden Gems scorecard, top to bottom. But that doesn't mean stocks can't go still lower from here. A lot of folks think they will. Then again, a lot of folks always think stocks are going lower.

Finally, a word of caution
That table I showed you earlier is real. The lesson, however, isn't that you should avoid stocks. It's that you have to be selective and/or diversify. There's certainly no shame in buying a low-cost exchange-traded fund (ETF) -- I own a number of them myself. But what if you're looking to beat the market?

Well, here's something to think about. This month in Hidden Gems, Bill and Seth are offering up their two new top picks, as usual. But they've also ranked their five favorite small-cap value stocks for new money right now. It's all spelled out for you right in the new issue and on the member website.

You can even check it out, along with every past pick and all back issues right now, in about five minutes. The complete service is free for a whole month, and there's no pressure to subscribe. To see how easy it is to accept your free trial, click here.

This article was originally published on July 19, 2006. It has been updated.

Fool writer Paul Elliott owns shares of Bank of America, which is an Income Investor pick. All Hidden Gems picks and results can be viewed immediately with your 30-day free trial. The Motley Fool is investors writing for investors.