Let me say right off the bat that in my years of working on Wall Street, I met relatively few truly stupid people. Further, that's very much been the case in my experience as a writer/analyst for The Motley Fool -- the vast majority of our readers are bright individuals with a firm grasp on reality and common sense.

And yet, despite being composed of a lot of really intelligent people, "the market" still manages to do some shockingly dumb things from time to time. To a Fool like myself, that's practically manna from heaven. If you can keep your brain functioning when others' are not, you can put a few extra percentage points of performance in your pocket.

Last week's major snafu in Japan finally prompted me to write about this notion. In the wake of a botched order from Mizuho Securities, the entire Japanese market sold off almost 2%. Yes, I realize the error exposed some of the rigidity, unresponsiveness, and weaknesses of the Japanese stock market system, but let's keep it in perspective. Is a screwup from Mizuho really a good reason to sell Sony (NYSE:SNE) or the JapaniShares (NYSE:EWJ) index? Of course not; in fact, it can make for a great entry point.

What about the periodic waves of selling that hit coal and energy markets? A storm comes or a storm goes, and the price of natural gas moves around by a couple dollars. Likewise, the price of oil dips a few bucks, and suddenly nobody wants to own drillers or service companies like Transocean (NYSE:RIG) or Schlumberger (NYSE:SLB). So I guess we have all the oil and gas we'll ever need, and we don't really need to drill anymore, right?

And let's not even get started on the month-by-month manic depression caused by retail same-store sales, or the quarter-to-quarter obsessions of the analyst and hedge fund community. I think we've all seen a stock or two get hammered for missing by a couple of pennies -- only to come roaring back in the next few months.

The most Foolish thing you can do is tighten those earmuffs when you start hearing the chorus of market stupidity. Remember, equity analysts and hedge fund managers aren't paid for thinking about stocks in the way that individual investors should. As individuals, you don't have to face a review every year (or every quarter). And it's not like you're going to be kicked out of your chair just because you held too much Pfizer (NYSE:PFE) and not enough Apple Computer (NASDAQ:AAPL) or Sirius (NASDAQ:SIRI) for one year.

Don't be so cocky that you ignore bad news, but remember to filter it through your own brain. Decide for yourself whether "bad news" is really that bad. And try to keep a few extra bucks on the sidelines in your portfolio -- you never know when you'll get the chance to buy a great stock at freak-out prices.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).