Over the past 60 years, the United States has seen, and survived, 10 recessions (not counting the one we might be in at present). From the shortest -- six months in 1980 -- to the two that spanned 1973-1975 and 1981-1982, we've muddled through and come out the other side. In between each, we've experienced, on average, almost five years of expansion.
So while we might be in another recession right now, I'm excited!
Pardon me while I wipe my chin
First, we have a whole bunch of people running around in panic mode crying, "The sky is falling!" They don't want to hold stocks during a recession, so they're willing to sell them -- cheap.
Second, the news media fan the flames of panic with constant stories about weakening consumer spending and the specter of recession.
Third, we've got a handful of really hated companies. Specifically, I'm talking about the banks, thrifts, and builders that caused and are feeling the fallout from the mess we're in.
What does that add up to? Bargains.
Like a kid in a candy store ... and the candy's on sale
One option is one of the ratings companies -- specifically Moody's
That mimics declines seen at banks that used its services to sell those "famous" CDOs and MBSs (Citigroup
Then there are (still) the homebuilders, trying to survive until housing purchases pick up again. While some might go bankrupt, conservative and well-capitalized companies will survive. Ryland Group
Even some staples companies have been dragged down. PepsiCo
Finally, there are retailers. All that talk about lower consumer spending in 2008 has driven prices way down. It doesn't matter if you're a home furnishings supplier such as Bed Bath & Beyond
"When Miller and Nygren speak, people listen."
Investing in the above industries might seem counterintuitive now, but Bill Miller of Legg Mason says au contraire:
[Several] years ago, everyone wanted tech and Internet and telecom stocks. ... The time to buy them was in 1994 or 1995, when they were cheap. But in 1994 or 1995, people wanted banks and small and mid caps, which should have been bought in 1990, and well, you get the picture.
Bill Nygren, another great value investor, agrees. Looking at the current economic situation, he wrote, "What usually happens is that suffering industries begin to recover, the next crisis comes from somewhere least expected, and the cycle of creating new investment opportunities starts anew. We have no reason to believe it will be different this time."
What these gentlemen know is that investing today in areas that aren't well-liked will position your portfolio for when we come out of this bear market. There will be another bull market. What we have now is the chance to grab good companies while they're cheap.
So what are you going to do? Stop investing in stocks altogether, worried that things will be different this time? Or listen to master investors (not me -- Miller and Nygren!) and look at some opportunities?
I know what I'm going to do, and I can hardly wait.
If you'd like some help in figuring out if a beaten-down company is worth investing in, take a look at our Inside Value service. Philip Durell and his team look in downtrodden areas of the market, just as Miller and Nygren advise.
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This article was first published on Feb. 12, 2008. It has been updated.
Jim Mueller owns shares of Coke, but no other company mentioned. The Motley Fool owns shares of Bed Bath & Beyond. That company, along with Coke and Moody's, is a recommendation of Inside Value. Bed Bath & Beyond and Moody's are also recommended in Stock Advisor. The Fool has a disclosure policy.
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