I presume that although we are in a severe recession it will not decompose into a full-scale depression, because that is what everyone is afraid of and desperate to avoid. Wall Street likes to say that the market has anticipated five of the last three recessions - the point being that a market crash frightens the authorities into taking necessary action.
Keynes observed that pragmatic businessmen often could not imagine that they were the slaves of defunct economists, but ironically, never is this more true than today of Keynes himself. So we run a huge deficit to postpone the worst. That means inflation, so bonds are unsatisfactory.
Investment opportunity is the difference between the reality and the perception. And since many equities are priced as though a depression might be on the way, many of them are attractively priced.
One approach I am comfortable with is owning shares in wonderful businesses that do well in all circumstances - Johnson & Johnson and the like. They rarely fly out of the park, but provide long, steady gains that will get you where you want to go. They often have huge cash hoards, e.g., Cisco, Apple, Microsoft, and Berkshire Hathaway, whose war chests exceed $20 billion. Or Hewlett-Packard, Google, Intel, or IBM, all in the $10 billion league. Such companies can take advantage of a weak market just as private investors would, with the difference that they know very well how much to pay for what fits their product line.
In the present environment I favor companies that can prosper in the lean years ahead. So, not Saks, but Wal-Mart; not Neiman Marcus, but Dollar General. Or specialists, such as Fastenal, Monsanto, or Schlumberger.
And when should you buy? In or near what I call the Time of Deepest Gloom, if you can spot it.
NEXT: Meredith Whitney