Over the past 60 years, the United States has seen, and survived, 10 recessions (not counting the one we are in at present). 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're in another recession right now along with its 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, doomed or not, 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 to ZymoGenetics.
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 to search among the beaten-down banks. In that space, Goldman Sachs
There's also US Bancorp
And if you don't want to invest in a bank, but still want exposure to the financial sector, consider Visa
Then there are (still) the retailers, trying to survive declining same-store sales and decreased consumer spending. Those companies which can buck that trend are likely to be best of breed. Some names include Best Buy
Finally, consumer products and tech have gotten interesting lately. Colgate-Palmolive
"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 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."
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 whether 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.
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This article was first published on Feb. 12, 2008. It has been updated.
Jim Mueller doesn't own shares of any company mentioned. Best Buy is a recommendation of both Stock Advisor and Inside Value. Amazon and NVIDIA are also choices of the former. US Bancorp is a former pick of Income Investor. The Fool owns shares of Best Buy. The Fool has a disclosure policy that believes, deep down, that the market will turn around.
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