Do you know the five best years to have bought stocks in the past four decades? They were 1974, 1982, 1987, 1990, and 2002.

Had you the foresight to buy stakes in high-quality companies such as Colgate-Palmolive (NYSE:CL), paint provider Sherwin-Williams (NYSE:SHW), or steelmaker Nucor (NYSE: NUE) at some of those major market bottoms, you could be sitting on a small fortune today. Warren Buffett laid the groundwork for his own stunning performance in 1973, buying Washington Post shares for $11.38 each; those shares now trade for about $470 apiece.

It turns out that there's a common thread among four of the years (all but 1987). Although no indicator can consistently predict the market's performance, this particular trait has coincided with four of the five best investing opportunities in the past 40 years.

Even better, this indicator suggests that we may be in one of those rare periods right now. But before I show you the data proving that point, let me explain what this indicator is.

How to profit from payrolls 
The number is the Bureau of Labor Statistics' measurement of U.S. employment. It's the most basic statistic out there -- an estimation of all of the nonfarm salaried jobs in America. Like any statistic, it has limitations, one of which is that it does not count the self-employed. But it is an excellent measure of the health of the economy.

Given normal population and economic growth, there is upward pressure on U.S. employment numbers on the order of 1% to 3% per year. The time to perk up as an investor is when employment numbers shrink year over year -- specifically when they shrink at lower rates than they did the prior month.

This is because each of the best buying opportunities -- 1974, 1982, 1990, and 2002 -- were in the thick of large and protracted declines in employment. Unemployment soared, and our economy suffered through painful contractions. When that happens, the stock market generally contracts as well. But buying in the eye of the storm has proven very lucrative over the long run, as this table shows:

Period

Length

Maximum Decline

S&P 500 Five-Year Return
From Bottom

1974-1975

12 months

(2.7%)

66%

1981-1983

18 months

(2.7%)

225%

1991-1992

15 months

(1.5%)

96%

2001-2003

29 months

(1.6%)

101%

2008-2009

13 months (so far)

(4.4%) (so far)

???

Source: Bureau of Labor Statistics.

And herein lies the opportunity. Clearly, this is has been a quick and deep recession. After all, we've already experienced a 4.4% year-over-year drop in employment, and we're only a year into it. You would expect the market to be down in the dumps, but it has rallied from its March lows. It's hard to say whether stocks remain attractive at these levels, but history has shown that buying during economic contractions when the market is reaching new lows is a savvy strategy.

If the economy does rebound quickly, we may look back on investment banks Morgan Stanley (NYSE:MS) and Piper Jaffray (NYSE:PJC) as solid buys. But if we aren't out of the woods yet, I'll take my chances with blue chips such as Paychex (NASDAQ:PAYX) and Unilever (NYSE: UL).

The next step 
Even if this appears to be a good time to invest, how should you do so? At Motley Fool Inside Value, we focus on companies with:

  • Strong balance sheets.
  • Significant competitive advantages.
  • Reasonable to excellent valuations.

The many high-quality stocks on sale today make our job a whole lot easier. If you'd like to receive our full list of recommendations and our five official best ideas for new money now, click here for a free 30-day guest pass to Inside Value.

Andrew Sullivan  loves analyzing employment data but owns none of the stocks mentioned in the article. Sherwin-Williams is a Motley Fool Stock Advisor selection. Paychex is a Motley Fool Inside Value recommendation. Paychex and Unilever are Motley Fool Income Investor picks. Unilever is a Motley Fool Global Gains recommendation. The Motley Fool has a disclosure policy.