I won't sugarcoat it: Investors are nuts.

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

If you liked it at $60 ...
You know the shtick. "If you liked Sirius Satellite Radio at $60, you gotta love it at $30." That was New Year's Day 2001. Two years later, you'd lost another 90% to a buck a share.

And Sirius wasn't alone. As you'll see in the table below, it was the same story for Qualcomm (NASDAQ:QCOM) and Intel (NASDAQ:INTC). Pain. Could the exact same thing happen today? Sure. Will it happen today? Who knows?

Either way, you'd be nuts to ignore the lessons learned from the tech crash, right? Not so fast. Here's why I'm getting greedy instead.

You probably should own stocks
I have to own stocks. I'm about as likely to switch to bonds and cash as I am to take up competitive bridge -- at least for the next 20 years. At my age, I just don't see any other way around it. And here's the catch for folks like us.

If we want to own stocks, we have to buy stocks. Would it be nice to always buy low? Sure, but contrary to what folks will tell you, nobody blows a whistle when we’ve hit bottom.

Now, could we wait out this volatility? Sure, but what exactly are we waiting for? For the first 20% move to pass us by? I never really got that. I can't tell you how today's stock prices will look relative to tomorrow's -- just that stocks are a better deal today than when we loved them last October.

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



Jan. 2001

Subsequent Fall to Bottom













Broadcom (NASDAQ:BRCM)




Prices are split-adjusted.

You read that right. Even after their stomach-turning initial plunges, every one of those former highfliers fell an additional 56% to 95% 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 I could have showed you that table in March 2000, I might have spared you some pain. But what about when the market plunged 39% in 12 days back in October of 1987? Or when stocks "cratered" in 1991 ... or the dozens of other times stocks have pulled back 20% or more? You see where I'm going with this, right?

Not only would that one table have kept you from picking up some terrific bargains over the years, it could have kept you on the sidelines for the entire 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. I’m the first to admit that the severity of this correction surprised me. And, yes, I'm hearing sporadic predictions that this time it really is different, and stocks are never coming back. But I'm not buying it.

Peter Lynch apparently agrees. Something he said recently made me laugh. “People say they're afraid of a stock market crash,” Lynch quipped. “Well, we’ve already had a crash. Look at the numbers.” A bit glib, perhaps – but we shouldn’t overlook what Lynch is trying to tell us.

Remember, every stock in the table we just saw had run up many times in value before the last crash. We didn't know for certain we were in a bubble in 1999, but we did know that stocks, especially tech stocks, were more expensive than they'd ever been before. Is that the case today? It hardly seems likely.

That’s why I’m trolling the market for bargains
I picked up a few shares of upscale bag-maker Coach (NYSE:COH) and casual diner Buffalo Wild Wings, a stock that’s up 183% since I read about it in Motley Fool Hidden Gems.

I also like China travel agency Ctrip.com (NASDAQ:CTRP), another Gems double I had the pleasure of visiting last year. Unlike the Qualcomms of 2000 -- or even Citigroup (NYSE:C) in 2008 -- these are solid small businesses with strong balance sheets and top-quality management.

But that doesn't mean stocks can't go lower from here. A lot of folks think they will. Then again, a lot of folks always think stocks are going lower. Which is strange, given that the long-term trend has been up. That's why I say we have to own stocks for the long haul.

Moreover, even if I can't predict where the markets are headed near-term, it's almost certain that America's top companies will head higher over the long run -- no matter what happens to "the market" year to year.

Finally, a word of warning
That table I showed you earlier is real, and a lot of investors got hurt. The lesson, however, isn't that you should avoid stocks. It's that you have to be selective and patient. When it comes to small caps, there's certainly no shame in buying a low-cost exchange-traded fund -- I own a few myself. But I also know something better.

The team of small-cap value analysts at Hidden Gems is bargain-hunting, too. This month in Hidden Gems, in addition to two new picks, Seth Jayson and Andy Cross rank their five favorite small-cap stocks for new money right now. All five are listed for you in the new issue and online.

You can check it out in about five minutes, plus see every past pick and read all back issues -- at no cost and with no pressure to subscribe. I truly think you missed your opportunity to sell. Now, it’s time to get greedy! To learn more about this special free trial offer, click here.

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

Fool writer Paul Elliott doesn't own any stocks mentioned. Ctrip and Buffalo Wild Wings are Motley Fool Hidden Gems recommendations. Coach is a Stock Advisor selection. The Fool owns shares of Buffalo Wild Wings and covered calls on Intel, an Inside Value pick. The Motley Fool is investors writing for investors.