How Do You Spell Opportunity? Maybe B-E-A-R?

The ink used in newspapers and magazines last week to pose this question--”CORRECTION, OR BEAR MARKET?”--could have drowned a small city.

Yet by the end of the week, the answer was no clearer to many of the Wall Street pros paid to think about this kind of thing, let alone to many individual investors whose memory of the last bear market in U.S. stocks, in 1990, is foggy at best and more likely nonexistent.

A bear market is when stocks go down a lot--most people know that. A correction is when stocks go down, but not so much.

According to the way the media usually present bear markets, the public naturally is supposed to assume they’re bad news.

But hold on a minute: Whatever happened to “buy low, sell high”?

If that’s still the best way to make money (anybody have a better idea?), isn’t a bear market actually a good thing?

Wouldn’t you rather buy stocks cheap and sell them dear--as opposed to buying them dear, then selling them cheap?

Whatever happens with stocks in coming weeks and months, whenever the term “BEAR MARKET” blares at you in headlines or in breathless prose from TV commentators, try to keep in mind the idea that there is opportunity inherent in a stock market decline--not unlike the opportunity that was inherent in rock-bottom prices for many Southland homes just 18 to 24 months ago.

There is always risk in the stock market. Even when prices are lower, risk is still there. But as with any asset that is in the long run desirable, risk ought to decrease as the price goes down.

Thinking about a bear market--even a correction--first as an opportunity can help put the fear that inevitably accompanies such declines (and should accompany them) in perspective.

Now, what did last week say about the U.S. stock market and whether the first true bear market since 1990 might be underway?

After diving 299 points on Tuesday, the biggest one-day sell-off since October, the Dow Jones industrial average struggled for the rest of the week, finally ending Friday with a 20.34-point gain, to 8,598.02. The net loss for the week: 285.27 points, or 3.2%.

Smaller stocks, which had been falling for months (versus the Dow’s decline just since its July 17 record high), actually fared better for the week: The Russell 2,000 index of smaller stocks, which by Wednesday was off nearly 20% from its record high set in April, finally rebounded with a vengeance on Thursday and Friday, gaining 2% and 2.3%, respectively.

For the week, the Russell lost 0.9%. But it’s still down more than 15% from its high, while the Dow now is off 8% from its high.

So what does that mean to the average American sitting there with a lot of money invested in stocks through 401(k) retirement programs or other such tax-deferred plans? Maybe nothing. If you’re invested in stock mutual funds, most likely your investment is down from its peaks this year--but still positive year-to-date.

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Since you may not know what the peak value of your 401(k) account was in the last few months, from a wealth standpoint this stock market pullback might well have gone unnoticed by you--except for the pesky news stories about it, of course.

If your stock funds’ performance, combined, is anywhere near average, you’re still looking at a gain of about 4% so far this year.

In other words, whatever you might want to do about your investments given all of the talk about corrections and bear markets, you have time to think about it, because you probably still have more money than you had at the end of last year.

(The calendar is an arbitrary meter, but for most investors’ purposes it’s the most convenient way of looking at things.)

Plenty has already been written about how individuals must decide on their risk tolerance, etc. That advice never really changes: Don’t have money in the stock market that you’re going to need in the next five years. End of lecture.

Beyond that, if the question is whether you should sell some of your stocks--including those held within the confines of your retirement account--and move that money into something else, the five-year yardstick is still a good one to use: You won’t need the money within five years? Stocks still are probably your best bet. You don’t need the money for 10 years or more? Stocks almost certainly are your best bet.

But here’s where the question of opportunity again arises. Let’s say you can handle the idea that a bear market--usually defined as a drop of 20% or more in key indexes like the Dow--is on the horizon. You’re prepared to see your stock accounts drop sharply in value, because you believe the market will rebound in due time.

If prices do drop significantly, could you take advantage of them?

In a 401(k) account you will indeed take advantage of them if you continue investing regularly through payroll deduction.

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Still, the worst feeling in the midst of a bear market, once you get beyond the sickly feeling that always accompanies even the temporary loss of money, is the helpless feeling that comes with knowing that you don’t have the cash available (in money market or other short-term accounts) to invest in the great opportunities that have popped up.

Nearly eight years into this bull market, that’s perhaps the best reason many investors will find to take some profits and build a bigger rainy day fund.

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Tom Petruno can be reached at tom.petruno@latimes.com.