Over the past 60 years, the United States has seen, and survived, 10 recessions (not counting the one we're currently in). From the shortest one -- 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 are in another recession right now and a big bear market, 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 fans the flames of panic with constant stories about weakening consumer spending and how the recession is hurting everything from Amazon.com
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 banks -- specifically Allied Irish Banks
There's also the investment bankers and brokerages. Some, like Morgan Stanley
Then there are (still) the retailers, trying to survive declining same store sales and decreased consumer spending. This is where a strong balance sheet is helpful. Gap
Even some big name companies in defensive industries have been dragged down. Merck
Finally, there are other sectors such as consumer goods and Procter & Gamble
"When Buffet speaks, people listen."
Investing in the above industries might seem counterintuitive now, but Warren Buffett says au contraire.
To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation's many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Bill Nygren, another great value investor, agrees. Looking at this type of 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."
These gentlemen know that investing today in areas that aren't well-liked will position your portfolio for the eventual end of this bear market. There will be another bull market. What we have now is the chance to grab some 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 -- Buffett and Nygren!) and look at some opportunities?
I know what I'm doing.
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, Ron Gross, and team look in downtrodden areas of the market, just as Buffett and Nygren advise.
Since the newsletter's inception, their picks are beating the market; plus, you can see the stocks they're recommending today for free with a 30-day trial.
This article was first published on Feb. 12, 2008. It has been updated.
Jim Mueller owns shares of Allied Irish Bank, but no other company mentioned. Intel is a choice at Inside Value. Amazon is a Stock Advisor selection, while Gap is a former recommendation. Allied Irish was chosen by Global Gains. The Fool owns shares of Allied Irish Bank and covered calls on Intel and Procter & Gamble. The Fool has a disclosure policy that believes, deep down, that the market will turn around.
More from The Motley Fool
10 Ways AI Has Improved Your Smartphone
By now everyone has heard about the groundbreaking potential of AI. Here's how you're using it on your phone right now.
Why Home Depot, Inc. Could Be a Gold Mine for Income Investors
It might be time to renovate your portfolio with this dividend-growth home-improvement juggernaut.
3 Things IBM's New CFO Wants You to Know
New CFO James Kavanaugh discusses currency, hardware, and growth investments.