Good News in Bad Times

It's never a good feeling to see the values of 401(k) accounts, IRAs and brokerage accounts get thrashed.

Bear markets — commonly labeled as a decline in a market index of 20 percent or more — emerge every five years or so. The average length of a bear market is 15 months, with an average decline of just over 33 percent. By now, we are probably most of the way through this particular bear market. And the average bull market that rumbles in afterwards usually lasts for five years and yields 166 percent in cumulative gains. So avoid the urge to sell your stocks recklessly.

Better still, bear markets have a tendency to create serious bargain prices in top-quality stocks. After all, the business of most public companies has nothing to do with real-estate speculation. And there are loads of companies that have no leverage whatsoever. Why, we ask, should a company like Netflix see its stock fall 50 percent just because bankers and a small population of land specula- tors ruined their financial lives through short-term greed?

In our opinion, if you're making regular contributions to your brokerage portfolio or retirement account, you're now picking up good stocks on the cheap. If retirement is still more than a decade away and you've got extra cash on the sidelines that you won't need for the next three years or so, allocate even more money to stocks during these tough times. Above all else, stick with a plan and keep investing.

Seek out good companies that can reinvest in their business, gobble up weakened competitors and grow their market share. These are the companies that will deliver huge rewards once the market turns and the economy gets back on its feet. Great companies will survive and thrive through any market cycle.

(Excerpted from the new book "Million Dollar Portfolio: How to Build and Grow a Panic-Proof Investment Portfolio" (Collins Business, $27) by Motley Fool cofounders David and Tom Gardner. Learn more at www.book.fool.com.