Ugly market we're having, isn't it?

My retirement portfolio has held its own -- I'm up about 1% since the first of the year, versus a drop of 12% or so for the S&P 500 -- but I know that a lot of that was due to the great run of Contango Oil & Gas (AMEX:MCF), which I bought in the low $30s in the spring of 2007 and sold at just under $90 a few weeks back.

Nearly everything else I'm holding is flat or down on the year -- Fidelity Puritan is down around 8%, and even my Berkshire Hathaway (NYSE:BRK-B) shares are down about 17% since the first of January. And my index exchange-traded funds are, well, looking like the indices. Not so good, in other words.

So am I worried? Not a bit. I'm worried about the broader economy, of course, and I'm more than a little worried about selling my house, but the markets aren't keeping me awake at night.

And they shouldn't be keeping you awake, either. In fact, bear markets can be a good thing.

Thinking like a billionaire
There's no doubt that bear markets are wearing, depressing events. Things just keep sliding and sliding, and the drops seem to be getting bigger over time. And every now and then, there's a sharp upward spike to get our hopes up -- is the bull finally back? -- only to be followed by another seemingly endless string of down days.

It's enough to make one lose hope. Of course, at the very simplest level, that's exactly what's happening -- one by one, investors lose hope and sell, the sellers outnumber buyers at the current price, and that selling pressure keeps prices dropping.

Put another way, more and more investors are becoming fearful, and their fears are driving them to sell.

Fear, of course, isn't necessarily rational, which means that rational investors can take advantage of others' fears. Put another way, you've probably heard Warren Buffett's maxim to "be greedy when others are fearful." He has made a lot of money over the years by buying good stocks when others were selling. So can we.

Making like Buffett
I'm not yet in Mr. Buffett's income bracket, but I've been pretty greedy lately. I sold Contango and some other stocks that I thought had run their course earlier this year, and I've been gradually investing the proceeds as opportunities come up.

There are two sorts of situations I've been looking at:

  • A whole sector gets slammed because of troubles with a few companies, taking perfectly healthy companies down with it. American Express (NYSE:AXP) is a great example, a "wide moat gem" that has been clobbered by the market's panic around anything that even smells like a bank stock. I bought some AmEx shares a few weeks back at a bit under $37. It won't be a six-month 10-bagger, but five or seven years from now I expect that price to look like a steal -- especially once the dividends are factored in.
  • A good company with strong long-term prospects that has been sold off because of short-term bad news. I recently wrote about my purchase of Starbucks (NASDAQ:SBUX), which I see as exactly this sort of situation -- short-term restructuring pain in the service of longer-term success. Again, this isn't a three-month trade; it's a longer-term position for my retirement portfolio, and I think it'll work out quite well.

I also took a small position in General Motors (NYSE:GM), which isn't most investors' idea of a "good company" (to say the least) at the moment -- but is a global giant with still-vast resources that stands (to my eye, anyway) a pretty good chance of avoiding bankruptcy and being one of the two or three major global players in autos for decades to come. Risky? Sure, and I kept my investment small to limit the downside. But when it dropped below $9, down about 75% since last fall, I couldn't resist. There was just too much fear in that price.

Finally, at the moment, I'm looking hard at bank stocks. The large-cap corner of my retirement asset allocation is still a little underweighted, and I'm looking at the big haircuts Bank of New York Mellon (NYSE:BK) and Goldman Sachs (NYSE:GS) have had, and pondering the risks. How about you? Ready to get greedy?

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Fool contributor John Rosevear owns shares of American Express, Berkshire Hathaway, Starbucks, and GM. The Fool owns shares of Starbucks, Berkshire Hathaway, and American Express Co., which are all Motley Fool Inside Value selections. Starbucks and Berkshire Hathaway are also Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy will take the Geico gecko over Gordon Gekko any day.