Don't Give In to This Fear

Here's a couple of predictions I recently came across:

• "We are in the early stages of a long cycle of generally accelerating inflation."
• "If we do not solve the energy crisis, the American Dream is over."

Where'd I find these bearish remarks? They weren't part of a Jim Cramer rant or a Barack Obama speech. In fact, they weren't made by anyone contemplating recent headlines.

Nope -- these are from the pages of Howard Ruff's 1981 book, Survive & Win in the Inflationary Eighties. These eerie predictions -- which sound like they were stripped from the front page of a recent Wall Street Journal -- are nearly 30 years old!

You'd think that after 30 years, we'd have moved on.

Unfortunately, we haven't
In times like this, many investors take as gospel that "The worst is yet to come."

Sometimes it's true -- but often it isn't. And then you end up like the tragic John Marcher in Henry James' The Beast in the Jungle, missing out on everything good that life has to offer simply because you were paralyzed by a fear of the unknown future. And that would be a shame.

As we (and, unfortunately, the adopters of Mr. Ruff's advice) now know, inflation didn't reach unimaginable heights. Rather, it peaked in 1980 at 13.6%, and then hovered around 4% for the rest of the 1980s. The "energy crisis" of the 1970s (which people argued was brought on by high domestic consumption and low domestic production -- sounds familiar, don't you think?) didn't end the American Dream -- nor did an economic bomb explode.

In fact, if you'd followed Mr. Ruff's doomsaying advice to load up on a precious metal like gold, your annualized returns on that investment from 1981 through today would have been a measly 1.2%, meaning your investment would have lost money due to the effects of inflation. 

However, if you instead ignored such bad advice, sat tight, and kept your money in stocks, you would have made much more. Over that same time period, which includes the recent market volatility, the S&P 500 has risen by an annualized 8.4%.

Beating the bear
Right now we're seeing parallels with the early 80s -- inflation is creeping up, the economy is stagnant, and gas prices are outrageous -- and investors are fleeing the market in droves.

Things always could get worse -- I don't want to downplay that. But it's not inevitable that things will worsen, which is where folks like Mr. Ruff and Mr. Marcher -- and those fleeing investors -- go wrong.

Just as it was when Mr. Ruff wrote his book, the best way to invest in a market like this is not to abandon stocks in favor of commodities, which are now trading at historic highs. Rather, it's to take advantage of rock-bottom pricing on the world's top companies -- companies with strong brands, wide moats, and attractive growth prospects.

Take a look at these high-growth companies trading at historically low multiples:

Data from Yahoo! Finance and Capital IQ, a division of Standard & Poor's.
*Four-year average.

While I can't predict the future any better than Mr. Ruff can, I'd argue that in another 27 years, betting on opportunities like these will have been the right choice.

Growing your wealth
Whatever else is happening, the current market environment has brought the world's best growth companies down to unbelievable price levels. So as you seek out top growth companies in this market, take a page from the playbook of our Motley Fool Rule Breakers team. Search for:

• Top-dog and first-mover status in an important, emerging industry.
• A sustainable competitive advantage gained through business momentum, patent protection, visionary leadership, or inept competitors.
• Great management with financial backing from smart investors and corporations.

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Adam J. Wiederman owns no shares of any company mentioned above. Google and Akamai Technologies are Motley Fool Rule Breakers recommendations. Tessera Technologies is a Motley Fool Hidden Gems Pay Dirt pick. The Fool's strict disclosure policy can be found here.