Trade in Groups

There can be various drivers that produce a down economy: political uncertainty, war, high unemployment, hyper inflation, government economic irresponsibility, oil scarcity, credit crunch, depressed housing market, capital flight, and disaster.

While the general investing public can lose trillions in paper wealth in a matter of days or hours, volatility in market performance and / or depressed stock values offer opportunities for bargain buyers. The time-tested adage after all is “buy low and sell high” (and not buy high and sell high).

When investors perceive economic risk, commodities such as gold appear as safe investments (for investors that purchase it early enough, and at the beginning of the down cycle).

Historically, gold has always been a valued vehicle where investors can (temporarily) park their cash.

Record foreclosure rates in the housing sector can provide an opportunity for a bargain hunter to purchase property at an unusually high discount.

However, the property may have built-in improvements that have long-term value, such as close proximity to a major freeway, commercial center, backyard pool, and in-house features (such as game room, attic, multiple fireplaces, etc.). Desperation to sell can translate to (eventual) profits for opportunistic acquirers that have cash.

(Cash is king.)

A down economy (and balance-of-payments deficits) can also lead to a devaluing of the local currency. The dollar, for instance, have taken a continued beating since September 11, relative to, say, European-based currencies.

Investors can bet against the dollar by shorting the currency and by purchasing foreign equities.

Warren Buffett himself has pursued this strategy within the past couple of years.
And the Oracle of Omaha has profited from it.

Written By:   Marv Dumon