Depression-Era Investors: What, Us Worry?

True, there's no evidence that Irving Kahn, Seth Glickenhaus, or Walter Schloss are fans of Mad magazine's grinning, worry-averse mascot. However, a recent Smart Money article does indicate that all three money managers are far less concerned about the current market than many of us younger investors. I say younger because most of us Fools don't share these gentlemen's rare badge of distinction: They all actively invested during the Great Depression.

I was heartened to learn that these stalwart investors still find plenty of opportunity in stocks these days -- and surprised by their general optimism about the economy.

Shared strategies
Both Kahn and Schloss reportedly gravitate toward companies that have little debt, while Glickenhaus identifies the economic power of Brazil, India, and China as reasons for enthusiasm about the market's future.

With those criteria in mind, I tapped the intelligence of the Motley Fool CAPS investing community to see which companies measured up. Using the CAPS screener, I searched for companies that sport CAPS' maximum five-star rating and match the following metrics:

  • Long-term debt-to-equity ratio less than 0.20
  • Trailing-12-month price-to-book ratio less than 0.75
  • Current ratio greater than 1
  • Market caps greater than $200 million

The names my screen uncovered should directly or indirectly benefit from growth in emerging markets:

Company

Headquartered

Share Price

Sector

Market Cap

Jakks Pacific (Nasdaq: JAKK  )

Malibu, Calif.

$12.80

Consumer goods

$358 million

Mahanagar Telephone Nigam (NYSE: MTE  )

New Delhi, India

$3.04

Technology

$963 million

Sims Metal Management (NYSE: SMS  )

North Sydney, Australia

$14.14

Basic materials 

2.57 billion

Unit (NYSE: UNT  )

Tulsa, Okla.

$26.25

Basic materials

1.24 billion

Source: Yahoo! Finance and CAPS, as of April 15, 2009.

If you think it's reasonable to emulate investors who've been honing their craft for, oh, seven or so decades, these companies could be a good starting point for additional research. Furthermore, the lack of large-cap companies in the screen results puts us in good company with the 103-year-old Irving Kahn, who has spotted bargains in small-cap names such as Audiovox (Nasdaq: VOXX  ) and Syms.

It's a different world today
Beyond their investing ideas, these well-seasoned investors collectively consider today's economic malaise quite different from the Great Depression. Two points clearly emerged from their conversations:

  1. Unlike the 1930s, the government today is actively helping the economy, from massive lending efforts by the Federal Reserve to food stamps and unemployment insurance.
  1. While the economy of the Great Depression depended upon a small number of industries, today's business mix includes the likes of Visa (NYSE: V  ) and Cisco Systems (NYSE: CSCO  ) in addition to century-old railroads and utilities.

Hold on a minute …
It feels a little presumptuous to disagree with a gang of pros who collectively command roughly three times my investing experience. Still, I've got a few quibbles.

Unemployment insurance and other social stability programs are undoubtedly good. But larger-scale economic bailout efforts such as the TARP, the PPIP, or the Fed's quantitative easing maneuvers aren't quite so clear-cut. From propping up zombie banks to encouraging high inflation, their side effects arguably have the potential to hurt as much as the programs themselves help.

Furthermore, our more diversified economy didn't seem to matter much back in fall 2008, when the commercial paper market -- the system of short-term lending that funds businesses' day-to-day operations -- seized up. Granted, as early as January of this year, commercial paper rates had fallen to near-record lows, but the ability for certain companies to roll over longer-term debt -- most notably in commercial real estate -- remains an issue. And our coming economic shakeup may temporarily cost us some of the economic breadth we've achieved over previous decades.

But don't mind me
Hey, my more cautious economic outlook could be misplaced. If you pursue a sound long-term investing strategy, it shouldn't matter whether today's aggressive government actions work better or worse than Uncle Sam's more passive 1930s approach.

According to these stalwart investors, you should hunt for companies that trade below book value and have the balance sheet strength to ride out a variety of troubles. With a portfolio chock-full of those kinds of names, you may find yourself sporting a great big Alfred E. Neuman grin of your own.

Related Foolishness:

Following a long-ago bicycling accident, Fool contributor Mike Pienciak sported a gap-toothed smile for several weeks. He does not hold shares in any company mentioned. Unit is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy becomes a picture of Tom and David Gardner when you fold section A to section B.


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