Posted by Ryan on December 20th, 2007 in Investment Strategy

There is a part of me that is looking forward to a recession, which would consequently drive down stock prices and the market as a whole. As a statement, that sounds like a horrible thing to wish for. That could mean great losses in retirement funds, higher unemployment, a slow down in gross domestic product, an increase in the cost of goods and gas, and the world’s confidence of America as a global leader would deteriorate. America would feel the economic pain of a recession.

Am I Insane?

Morally, it would be wrong for me to wish for this sort of thing. But, if a recession were to come, which inevitably it will at some time in my life, I am prepared. Not only am I prepared, I am excited about the opportunities it will present. As billionaire investor, Warren Buffett stated during a recent CNBC interview:

I hope I live long enough to see a couple (more) recessions in this country . . . It is the nature of capitalism to periodically have recessions. People overshoot. So, it isn’t the end of the world. I mean, as a matter of fact, for an investor, you know, it turns out to be the times when you make your best buys. I made by far the best buys I’ve ever made in my lifetime in 1974. And that was a time of great pessimism and the oil shock and stagflation and all those sort of things. But stocks were cheap.

Let’s face it, looking at the value of your investment portfolio decline is not a very good feeling any way you look at it. Watching your portfolio decline and having the mental fortitude to actually buy stocks during a decline in the stock market is an even harder thing to do. What if the value of the stocks just keeps going down? If you are absolutely confident in your decision, buying more shares of the stock as it tumbles will only make you more money over the long run.

Leave Your Emotions Out of Investing

Value investors buy a particular stock when the intrinsic price of the equity is under-valued. They live and die by the When Everyone’s Selling, Start Shopping principle. If you have done your research and the stock temporarily goes lower, don’t panic. If you absolutely believe you bought a piece of a great company, with great management, great earnings history, and at a discount price, the price of the stock will return to the fair market value in due time.

Poor economic conditions can affect the market as a whole. It is perfectly normal for booms and busts to exist in the economy. America is resilient, and if you are confident in America’s growth over time, which history suggests you should be, the economy will rebound and reach new highs. Those who took advantage of the great opportunities during the tough times will build enormous wealth.

Some of the wealthiest and greatest investors in the world saw and took advantage of opportunities during times of turmoil. As Buffett says, “Be fearful when others are greedy and greedy only when others are fearful.” In 1995, Donald Trump bought 40 Wall Street in Manhattan for $1 million when it was completely empty and ailing. Investors thought he was absolutely crazy at the time. The property is now valued at over $320 million.

Millionaire Money Habit: Leave your emotions behind when investing in order to think and act logically. Buy equities because you have determined that they are undervalued and you will be rewarded over time. Fortunes are created when you can take advantage of buying opportunities during that present themselves during economic downturns.

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