Buy-and-hold investing is finished. Kaput. On the junk pile of history. The experts on the TV money shows tell me so.

The faithful who have held on to their shares through the worst bear market since the Great Depression have finally had enough. They're ready to throw in the towel. The technical analysts searching for a market bottom tell me so.

The buy-and-hold approach is so out of vogue that investment magazines are replacing "10 Stocks to Buy Now" on their covers with "How to Make Money Without Stocks."

Just a little more of this and buy and hold will be so out of favor, so reviled, so ignored that I'll be ready to raise my contrarian cheer: Buy and hold is dead! Long live buy and hold!

A Buy-and-Hold Sweet Spot

Some time in the next year -- short of a major breakdown of the global financial system and/or the onset of massive deflation -- I think the stock market will move into a phase that minimizes the risks in buy-and-hold strategies and maximizes the strengths of the approach.

To understand why I think buy and hold is about to hit a strategic sweet spot, you've got to understand what went wrong with the strategy in 2000. Or at least, what went wrong with the strategy as most investors practiced it. To my mind, the name says it all: Buy and hold. Not "buy and hold and sometimes sell," which is how I'd rephrase the approach. Not "buy and hold until something fundamental changes at the company for the worse," as Warren Buffett preaches and practices. And certainly not "buy and hold until the market trend changes," as a market timer with buy-and-hold convictions would advocate.

It took an extremely disciplined buy-and-hold investor -- a Warren Buffett, for example -- to remember that successful buy-and-hold strategies needed a selling discipline as stocks soared ever higher in 1999 and then again in 2001. When almost every decision to sell a stock turned out to be a mistake, when even shares in seriously flawed companies moved up relentlessly, who thought about when to sell? Selling is the hardest thing for most investors to do anyway, and the times made it easy to forget about this difficult part of the process.

That weakness in the strategy turned out to be a costly one. The market is still full of investors who have held on to their shares of

Cisco Systems

(CSCO) - Get Report

or

JDS Uniphase

(JDSU)

, because they believe, mistakenly, that buy-and-hold investors never sell.

Contrast the environment then with the environment now. Anybody out there think the challenge for a buy-and-hold investor over the next five years will be deciding what stocks to sell and when?

No. The task facing buy-and-hold investors will be the one that the strategy is good at -- identifying stocks to buy for the long haul, and then holding them through periods of short-term volatility.

This doesn't mean that I think buy and hold will be the best-performing investing strategy over the next decade. If the stock market is sufficiently volatile, disciplined and experienced traders should be able to outperform buy-and-hold strategies. But I do think that for investors who don't have the time or inclination to master trading, buy and hold will reap the bulk of the gains that the equity markets have to offer, whether that's 6% a year or 10% -- and at the cost of less-than-average risk.

A Good Contrarian Is Early

This still isn't an easy time to be a buy-and-hold investor. Even thinking about buying right now is an extremely contrarian position. All anyone wants to talk about is the danger in the market and the alternatives to putting your money in stocks.

So before you begin, you need to recognize that, like all good contrarians, you're likely to be early. I certainly can't tell you that the stock market as a whole isn't going lower from here. We seem to be putting in a bottom near current levels and near the July 24 low, but the pattern is certainly still in formation. There is a long list of potential real-world shocks that could send the market indices substantially lower. All in all, I certainly don't think this is a time to rush in, but rather to build positions gingerly.

Very gingerly. The financial markets haven't finished repairing the balance-sheet damage done in the bubble market. Some companies are looking at another year or 18 months of hard work repaying debt and rebuilding cash flows before they regain solid footing. Other companies seem to have an even longer path to travel. And still others (we can't know how many) have just begun to show the initial signs of a delayed deterioration that will send them into bankruptcy.

The investor who is starting to build or rebuild a buy-and-hold portfolio needs to keep those market conditions in mind. To me, that means following these six rules:

1. Only the best.

This isn't the time for bottom-fishing or wishful thinking. No buying of companies with damaged competitive positions in the hope that a general economic recovery will lead to a jump in the price of that $2 weak sister. Go for the best company in its class.

2. If the business and the financials aren't transparent to you, take a pass.

General Electric

(GE) - Get Report

, may be a great company -- or not -- but getting your hands around the black box that is GE Capital is a task beyond most investors. This isn't the time to be buying shares in companies with potential liabilities that you can't understand or measure.

3. Balance sheets, balance sheets, balance sheets.

Companies that come out of this bear stock market and this economic slowdown with strong credit ratings and the ability to spend and raise cash will be able to take advantage of weaker competitors. Companies that have damaged their access to capital will have to struggle to avoid falling behind or even failing entirely.

4. Avoid damaged goods.

Buying shares now in a company with credit-quality problems, with suspect revenue numbers or with pension liabilities is too risky in an uncertain economy like this. If the economy weakens further, or if the recovery in stock prices takes longer than expected, weak balance sheets and shaky income statements are likely to deteriorate further.

5. Look for technical foundations.

Stocks that are still in free fall on their charts don't deserve your money and attention now. Why buy anything that's still locked into a downtrend? Your potential buy candidates should show either an uptrend (yes, there are some, even in this market) or a long basing pattern that has put a potential foundation under the stock's recent price level.

6. Buy stocks on the basis of their future potential, not their former greatness.

When we finally emerge from this bear market, the economy and individual industries will be very different from what they were in 1999 and 2000. Some profit margins that have disappeared in the slump are gone for good. Some competitive advantages have vanished never to return. Build a buy-and-hold portfolio around the stocks you'd like to own for the next 10 years, not around stocks you wished you owned during the bull market of the 1990s.

So what are the stocks that meet these criteria?

I could quickly throw out some names here, but I'd prefer to make a detailed argument for five stocks that deserve your buy-and-hold consideration. Fully evaluating a stock against my six rules (and looking at other issues such as the company's growth potential) takes some time and column space. So I'll be devoting five columns over the next month or so -- not necessarily in a row -- to identifying and explaining five buy-and-hold picks. I'll discuss the first candidate, from the banking industry, in my Oct. 22 column.

Patience, please. I don't think we have to be in a rush in a stock market like this.

At the time of publication, Jim Jubak owned or controlled shares in none of the equities mentioned in this column. He does not own short positions in any stock mentioned in this column.