Positioning your investments to deal with recession.

No matter the reason for a decline in the market – recession real or imagined – there are a few things wise investors can do to continue making money while awaiting recovery.

Here are some guidelines to follow:

Try “Value Investing”. Look for bargain priced stocks that may be undervalued due to slowing in market activity.  Value stocks are always out there to be found during recession and remember, some of the most famous investors have acquired their wealth in this way. Search for well established companies that have been positioned to make it through previous recessions. Historically, these companies are characterized by slow, regular growth. Coca-Cola comes to mind. The best buy among those companies on your list will be those furthest away from their 52 week high.

Look for companies with lots of cash on their balance sheets. Under normal conditions, management hoarding too much cash could be a symptom of not using liquidity to their companies advantage, but during recession cash is essential for riding out periods of slow sales. Apple Computer, for example is sitting on $15 billion of cash in the bank. That is enough to carry on with normal research and development, setting Apple up to come out of a recessionary period with an arsenal of innovative ideas lined up for consumers anxious to resume spending.

Think about companies that are in recession proof industry sectors. People always need to eat. Choose under priced stocks of companies supplying a needed service or product.

During recession, consumers always put off laying out large amounts of cash for big ticket and luxury items. They are content with accessorizing what they own, so your job is to find companies specializing in after market, add-on components.  Keep an eye on companies selling big ticket items usually companies in these sectors are hit first and hit hardest. If you hold these stocks, get rid of them early and buy back in later when you think they have bottomed out and you will be better positioned to reap the benefit of the recovering economy.

Take a more conservative route if you must. Consider moving money into the bond market to sit out the storm.

No matter the approach, the most important point of this article is to stress the importance of tuning out the negative talk in the media so you as an individual investor can concentrate clearly upon alternative action. It is sad but true that the impact of recession is multiplied greatly by the psychology of fear. The actual economic impact of a simple adjustment in the business cycle or economic cycle, can more often than not, snow ball into a completely unwarranted recession.

Pulling out of recession.  How does an economy recover from recession?

There are several schools of economic thought that try to adequately address that question. It can be Keynesian Economic Theory, government fiscal policy, central banking system intervention, or just laissez-faire liberalism which allows natural forces to run their course. These are all complete, separate, stand alone independent studies which are not the target of this particular look at recession. To keep it simple the underlying solution to pulling out of recession can be summed up in one word.  Spend.    

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