Recession Survival

How To Profit From An Economic Recession!

Stock Market Investments

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As businesses begin to lose money and booming, raging profits give way to something a little more on par with their daily expenses the door to successfully investing in the market swings wide open and invites you in. The principles of investing in the stock market during a recession are remarkably similar to the principles of investing in real estate. When you invest in the stock market during a recession you have the opportunity to take advantage of a company’s poor fortune.

How? When companies are making money hand over fist the value of the company goes through the roof, and as the value of the company rises so too does the value of its stock. So when a company is riding high the price of the stock is going to be high as well. Shift the situation a bit, however, and the story changes.

Take mortgage giant Fannie Mae. In the month of July 2008 alone the value of its stock fell from $16 and change to a little over $8 a share. By September of that same year the share price was under a dollar courtesy of the sheer quantity of its borrowers that had defaulted on their loans.

Fannie Mae is only one of many companies who suffered a similar fate during the last recession. It’s situations like these that present stock holders willing to think in the long term with a golden opportunity to make a profit. If they can purchase the shares when they are low, as in Fannie Mae’s case, less than 1/16 their value, they can sit back, fold their hands and wait for the recession to end. When the recession has ended they can sell their shares for a tidy profit, sit back and pat themselves on the back for a job well done.

That doesn’t mean you should go out, find a company that’s failing and throw your life savings into their stock. That’s a recipe for disaster that many investors have fallen into over the years! This is a golden opportunity that definitely shouldn’t be allowed to pass you by, but there are a few things you should watch out for.

1  First and foremost, when you’re choosing a company to invest in it’s essential that you choose one that’s going to weather the storm of the recession and bounce back when the time comes. If you sink your savings into a company and it goes under as a result of the recession you’re going to be no better off than you were before. To determine whether or not a company will survive to see a bright new future rather than being culled out when the recession separates the wheat from the chaff, answer the following questions:

(a)  How long have they been in business? Companies that have been in business for many years are unlikely to go under because of a simple recession-in fact, they’ve likely weathered many of them in their time. A company that’s already proven their staying power is an excellent choice of investment, and should definitely be given first consideration.

(b)  What do they do? Although companies that specialize tend to be movers and shakers when the economy is normal, if they are unable to expand and “macro” themselves (a topic we’ll talk about in greater detail in just a bit) to adjust to the changing economy they’re going to go under. If a company has not been able to expand and diversify, and if it doesn’t offer a product that people are guaranteed to need day after day and therefore are pretty much guaranteed to keep coming back for, it’s at a high risk for going under during the recession and should be given a wide berth.

(c)  Is their industry stable? Historically, there are certain industries that tend to fare better in a recession than others, and these should be given firm consideration when you’re expanding your portfolio. Utility stocks (telephone, electric, gas), food and “escapes” such as cigarettes, alcohol and gambling have a history of tremendous success when it comes to riding out a recession because these are the industries that most consumers deem necessities and will continue pumping their money into.

(d)  Is it a necessity? The industries listed above are stable choices during a recession because they are deemed to be necessities; however, if there is one industry that you can be sure is not going to go anywhere in the face of any kind of recession, it is the healthcare and pharmaceutical industry. Regardless of what the economy looks like, people are going to get sick and they’re going to need their medication to recover. This is a strong, stable choice for your portfolio, and it’s one that you can count on to bring in a steady, if not always remarkable, return.

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