When the stock market goes on sale, smart investors are supposed to seize the opportunity.
But Wall Street's decline of the last three weeks has been so drastic, it has left even veteran money managers too afraid to step up.
Aren't stocks cheap yet? Nearly everyone agrees that, on paper, they are, with major indexes such as the Dow Jones industrials now at five-year lows and down more than 40% from a year ago.
Yet instead of attracting bargain-hunters, lower prices have had the opposite effect: Stocks have crumbled so quickly recently that many potential buyers have been driven back to the sidelines.
"A lot of things looked cheap a week ago -- then they cratered in your face," said Mark Foster, chief investment officer at money manager Kirr, Marbach & Co. in Columbus, Ind.
Charts of stock prices "all pretty much look the same," Foster said: The trend lines simply drop straight down beginning in late September.
Shares of machinery giant Caterpillar Inc., for example, had dived to $43.13 by Friday from $64.13 on Sept. 26. Retailer Nordstrom Inc. fell to $18.38 from $29.19 in the same period, while energy titan Chevron Corp. slumped to $57.83 from $86.95.
For investors who hunt for value in the market, "no formula is working now," said Brian Barish, head of Denver-based Cambiar Investors, which manages more than $5 billion for clients.
"If you bought something, it has just gotten clipped even lower," he said.
On some level, of course, nothing is new here. Bear markets are supposed to be frightening, and they're supposed to severely test investors' patience.
And by the time they run their course, many stocks inevitably are at bargain levels -- yet buyers are scarce.
The old maxim is that stocks are the only thing people want less of as prices drop; with any other product or service, consumers tend to love to buy on the cheap.
Typically, the market falls because investors are anticipating economic trouble that will slash corporate earnings.
That is true this time as well. But the root cause of the economy's woes is the credit crisis that is gripping the global financial system. And the credit situation is so far-reaching and so dire, it has left many investors hard-pressed to gauge the ultimate effect on share prices.
In the near term, the credit market turmoil is forcing some big investors to sell stocks without regard to what they might believe the securities are worth in the longer term.
For example, some hedge funds that have borrowed money to buy stocks, bonds, commodities or other investments have been facing demands by their lenders for repayment of those loans as credit continues to tighten.
A fund that needs to raise cash isn't going to focus on whether a stock's price already is irrationally cheap. The only question is whether a sale can be accomplished quickly.
That helps explain the indiscriminate selling that went on for much of last week, driving the Dow index down 18.2% to 8,451, its worst one-week decline in history.
"We are at that point where they're throwing the baby out with the bathwater," said Art Hogan, market analyst at brokerage Jefferies & Co. in Boston.
For stock value hunters, that forced selling is another reason to step away rather than risk getting dragged down by other investors' money troubles.
The bigger question that the credit crisis poses is how much economic pain it will inflict, and what that will do to corporate earnings.
The stock market's steep decline has left many stocks looking inexpensive compared with Wall Street analysts' estimates of earnings per share in 2009.
Caterpillar, for instance, is expected to earn about $6.50 a share next year. At the stock's closing price of $43.13 on Friday, that means its price-to-earnings, or P/E, ratio is less than 7.
In a healthy market, P/Es in the upper teens are commonplace. So when high-quality stocks dive to levels at which their P/Es are in the mid- or low single digits, the shares are considered relative bargains for the long run.
Chevron's P/E on estimated 2009 earnings per share now is just above 5. Nordstrom's is less than 8.
Shares of Microsoft Corp., which traded as high as $35 early this year, closed at $21.50 on Friday. The stock's P/E on estimated fiscal 2009 earnings per share now is 10.
But the challenge for investors is to decide what's reasonable for earnings expectations. And what is vexing the market now is the risk that the credit crisis could fuel the worst recession in 25 years, or even some form of depression.
Cambiar's Barish said he remained optimistic that the government would be able to protect the fragile banking system from collapse.
"But there is the possibility . . . that they just can't do it," he said. "Then we would sink into a terrible economic situation."
If 2009 earnings estimates are shredded by a disastrous economy, current P/E ratios on stocks aren't the bargains they appear to be. If Caterpillar earns $2 a share next year instead of $6.50, its 2009 P/E would be above 21 at Friday's stock price.
The upshot is that, if investors turn much more pessimistic about the economy and earnings, stocks may have much further to fall in the next few months -- despite already seeming cheap.
With no modern-era reference point for the current credit crisis and its potential fallout for the economy, guessing earnings is more than the usual struggle, said Foster of Kirr, Marbach.
"You're flying blind," he said.