But that’s not how bear markets usually work. They usually don’t have those drops that feel like a punch to the gut. A bear market typically dribbles lower until one day you wake up and realize you’re down 20%.

Bears usually appear when investors are optimistic. That’s hardly the case right now. According to the American Association of Individual Investors Sentiment Survey, only 23.6% of investors are bullish, while 46% are bearish. The bears are up 3.9% from last week. The long-term average is 39% bullish against just 30% bearish.

A Franklin Templeton Global Investment Survey found that 45% of respondents are more risk averse this year and only 20% would consider becoming more aggressive in their portfolios in 2012.

Combing the financial websites, it’s hard to find someone recommending that investors buy stocks.

In other words, investors are scared, and that’s usually a good time to pick up some cheap stocks. There may not be outright panic quite yet. The bottom may still be a little further down, but it’s probably a good time to start nibbling at some stocks that you’ve had your eye on for a while but wanted to wait until prices went lower.

Take Advantage of Higher Yields

For example, some of the stocks in my Perpetual Income Portfolio whose yields declined as the stock prices rose, once again have attractive yields.

One I really like, Community Bank Systems (NYSE: CBU), is a great little bank based in upstate New York and Pennsylvania. It’s currently yielding 3.9%, that’s up from 3.5% just over a month ago when the stock was trading several points higher (although Ultimate Income readers are enjoying a yield of 4.7% if they bought it when it was first recommended in September).

Could the market head lower from here? Of course it could. We’re not market timers at Investment U, so I’m not going to make a prediction. However, I will say this certainly doesn’t feel like a bear market.

Instead it feels like an opportunity to leg into some positions, particularly for income seekers who felt shut out over the past few months as income stocks’ prices rose sharply, making obtaining an attractive yield difficult.

Thanks to this sell-off, it just got a little easier.

Now, if anyone has any suggestions on where to find bear repellent (for real bears), I’d appreciate it.

Good Investing,

Marc Lichtenfeld

P.S. One of the MLPs in my Perpetual Income Portfolio fell about 17% since hitting a high early this year. But with a yield that’s up and the news that it’s raising its dividend even more, this one looks prime for dividend seekers.

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