It's Generation B

The sound of revelation is everywhere: in living rooms where investment clubs meet, the ones that still bother to meet, anyway; on the cell phones of the flat-busted, way-cool crowd, which stopped day trading months ago; and in the hallways of mutual-fund companies where hotshots are trying to make sense of something they were never programmed to comprehend. So this is a bear market, they sigh.

They need to catch their breath, as may you. The stock market hasn't administered this kind of water torture in 20 years. The incredible irony is that this bear market still isn't official, and we've been in it for a year. Technically, a bear is defined by the Dow's or S&P; 500's declining 20%. The S&P; is close; it's off 19.2%. So the bear may be on the books by the time you read this. But it really doesn't matter because the torture started 14 months ago when the Dow (down 10.7%) peaked, and it began in earnest with last spring's meltdown of the NASDAQ (down 58.1%), taking with it the Internet mystique and those cocksure techies and blowhard analysts.

This is no cuddly bear like the past three--all of which lasted less than three months. To find this kind of sustained drilling you have to stretch back to 1981, when the last vestiges of stagflation were being driven from the system along with The Dukes of Hazzard. A new generation is being introduced to the disheartening pattern of lower highs and lower lows.

So far, the panic has been limited. But then that's what makes it torture. As bad as the '87 crash was (22.6% on the Dow in a day), we were in a new bull market the next morning. Indeed, the '87 "buying opportunity" had much to do with fostering a buy-on-dips mentality that prevailed through the '90s. That mentality is in the process of getting crushed. We've moved from buying dips to just holding on. What comes next is "'Omigod, the stock market is risky,'" which is when people get out, says Nicholas Sargen, strategist at J.P. Morgan Private Client. That level of despair would probably signal a bottom. The theory is that when everyone has given up, there are no more sellers--only buyers.

Some on Wall Street think we're almost there. Sentiment clearly has turned gloomy. But gloomy enough for a bottom? Cisco sits at a two-year low and still trades at 59 times last year's earnings. More encouraging is that more stocks are making highs than lows on the New York Stock Exchange, and money funds had record inflows of $94 billion in January. That's a lot of buying power. Indeed, Christine Callies, chief strategist for Merrill Lynch, believes we're in a "stealth bull market." A slew of smaller companies is doing well while the big stocks are getting taken apart. The average diversified stock fund is down just 7% since the start of last year; 34% have risen, Morningstar reports.

Where does that leave you? Dollar-cost averaging, fully funding your 401(k) and staying diversified, one hopes. There's no telling when things will turn up. My guess is not real soon, given that we're in a business-spending slowdown and the most popular sector, tech, has been creamed. But you want to be invested when the mood shifts. Otherwise all this pain will have been for nothing.

E-mail Dan: kadlec@time.com . And see him Tuesdays on CNNfn at 2:15 p.m. E.T.

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