Together, nine years ago, we watched the beginning of a downturn that cut the S&P 500 in half and dropped the Nasdaq nearly 80% from its highs.

It was a maddening time for investors. Executives were caught with their hands in the corporate cookie jar. Technology shares plummeted, with hundreds of companies going bust. Very few bear markets in U.S. history have hurt so much.

Even strong names such as Cisco Systems (Nasdaq: CSCO) and Hewlett-Packard (NYSE: HPQ) saw their stock prices decline some 80%.

Just how painful was it? Ask Nobel Prize-winning psychologist Daniel Kahneman, who proved that humans are innately loss-averse, particularly when it comes to money. Emotionally, losses hurt us far more than gains give us pleasure. Naturally, then, those massive declines crippled tens of thousands of investors, many of whom will -- sadly -- never throw the one-two punch of savings and investment again.

Unfortunately, we're seeing the same trend today. We had corporate malfeasance at some of our country's most respected financial institutions, and now stocks are dropping and investors are swearing off the market.

It doesn't have to be that way.

Win with moderate risk
The solution is not to bail out of the market altogether, nor to seek shelter exclusively in bond funds. With the right perspective and useful tools, you can strengthen your stomach and beat the market -- because you'll do so without assuming huge risk. I know that's true, because it's being done every year by the world's master investors -- from Buffett to Lynch to Tillinghast to Miller.

Those who take the biggest risks and buy what's hot today usually take the biggest hits in down markets. In the meantime, a host of methodical, smart, and contrarian investors ring up great returns, even through tough markets, by adhering to Warren Buffett's first rule of investing: Preserve capital.

Today, I want to focus on one sweet way to preserve capital and beat the market. The general principle is simple: Buy stocks that have paid uninterrupted dividends for years and that will continue to do so even as many companies cut their dividends in this economic downturn.

Consistency to victory
Let's investigate this idea by looking first at Procter & Gamble . P&G has paid a stable dividend since 1890. Yep, you read that correctly -- the company has paid dividends steadily for the past 119 years. Some of you may be thinking, "Bor-ing!" But over the past 15 years, P&G has returned 11.3% annually, enough to turn a $10,000 investment into $50,000 today.

And when stocks like this temporarily decline, as is happening during the current market swoon, owners still get a dividend payment that inspires us to be patient and calm -- two of the primary traits of the world's greatest investors. Continued...