In a dutch oven or large stew pot heat butter and oil over medium-high heat. Add chopped onions, carrot, and celery and saute for about 4-5 minutes until lightly browned.
Add tomato paste and saute for one more minute, stirring constantly. Then add paprika powder and saute for a few more seconds, be careful not to burn the paprika.
Add red wine and beef broth. Scrape the bottom of the pot with a spatula to loosen any brown bits. Bring to a simmer.
When it is simmering add the stewing beef, bay leaf, and pepper. Bring back to a simmer over low heat. Let simmer uncovered for about 2 hours. Stir occasionally. If you want to add potatoes and bell peppers add them 30 minutes before the time is up.
The goulash is done when the meat is tender and the sauce has thickened. If the meat is not tender after two hours let cook for 30 more minutes.
Combine water and cornstarch in a small bowl and add it to the goulash. Bring to a simmer while stirring constantly until thickened.
Season with salt and pepper to taste, take out the bay leaves, and serve.