In late 2002, Richard Bregman of MJB Asset Management in New York was pitching a new prospect, the mother of a client. The referral should have cinched the deal, except for one thing: The woman couldn't stomach severe losses, and the S&P 500 had dropped 47% from its then high in early 2000.

Bregman was left to wonder about his faith in stocks for the long run. "I realized that there was some fundamental problem where people wouldn't trust their advisors not to lose money," he says. "I had to start thinking differently about what I'm doing."

As the next bull market took off, Bregman was retrenching. He no longer locked up his clients' money in equities, believing that it would compound many times over. Buy-and-hold, he concluded, was not a guaranteed strategy, and it could go terribly wrong at a time when clients could little afford it.

Bregman's extreme move looked foolish at the time, as stocks set fresh highs in the ensuing five years. But after the recent carnage, advisors are wondering if they shouldn't have followed a similar tack. The trust in stocks that carried the advisory business through the past two decades is wearing thin.

BULL MARKET THEORY

The central practice of money management is modern portfolio theory, first developed by Harry Markowitz, Merton Miller and William Sharpe. The theory states that a mathematically derived basket of diversified securities can stay on the efficient frontier—a distribution of asset classes that should balance maximum returns with minimum risk. Typically, gains are higher on the winners than losses are on the losers. This efficient allocation is maintained indefinitely, trading only to rebalance the portfolio. It's how most planners execute a buy-and-hold philosophy.

It seems to makes sense. Despite periodic dips, markets have generally risen over time. Also, steady rebalancing forces investors to take advantage of relative underperformance.

Buy-and-hold and the planning profession grew up together in the 1990s, a great bull market. For the 18-year period between 1982 and 2000, the S&P 500 returned more than 2,117%, according to Ibbotson Associates. "If you did anything else, you didn't make money," says Ken Solow, chief investment officer of the Pinnacle Advisory Group in Columbia, Md., and author of Buy and Hold Is Dead (Again): The Case for Active Portfolio Management in Dangerous Markets.

But there are times when the markets don't work this way. "There really is risk in the fat tails of the distribution [of returns], and these events happen more often than we thought," says Matt Rubin, director of investment strategy with Neuberger Berman in New York. In the last quarter of 2008, for example, all investment classes except for Treasuries and cash nose-dived.

THE LONG, LONG VIEW

Hidden within these numbers is a different story. For the last 80 years, stocks were the place to be. A dollar invested in the stock market in 1929 would be worth $759 today, while the same dollar in bonds would be worth just $74.

But what happens if you catch a long stretch when the market doesn't advance? The S&P 500 trades at the same level today as it did in August 1997. And Research Affiliates Chairman Robert Arnott says that Treasury bond returns have actually outpaced stocks over the last 40 years.

"Buy-and-hold works fine if you have a long enough time horizon," says David Blain, chief investment officer of D.L. Blain & Co. in New Bern, N.C. But in a secular bear market-which many forecasters believe is what we've got now-a buy-and-hold approach can be disastrous. Secular markets can last up to 20 years. Staying the course could further pummel portfolios. "Letting someone's portfolio decline 50% isn't prudent management," Blain says.

Consider how a buy-and-hold investor may have fared through the Crash of 1929. Holding a basket of stocks similar to the DJIA, that investor would have lost 89% of his money over the next three years. It would take the following 25 years just to break even. "That's a lot of years of buying and holding and hoping," says Dominick Paolini, a registered investment advisor with Investment Protection Services in Denver.

There's no certainty that stocks will bounce back to their pre-recession levels quickly this time either. Prof. Elroy Dimson of the London Business School writes that it might be nine more years before the Dow, including dividends, has even a 50% chance of getting back to 2007 highs. "Long term has always been defined as 10 years," Rubin says. Investors might need to think in increments of 20 years or more if they're going to stick with stocks.