Craig's Eye View

Is now the time to invest??

Good question - lets take a look at some trends from the past four recessions.

Resent Recessions (National Bureau of Economic Research):

• Mid 1970’s – (1973-1975)
• Earley 1980’s –(1980-1982
• Early 1990’s –(1990-1991)
• Early 2000’s – (2001-2003)

From a chart published in the February 2009 Report on Business magazine (shown above), one can observe a very interesting relationship between the year a recession starts, and the year it ends (in relation to the S&P 500 index).  Here is what can be observed:

• In 1973, the return in the S&P index was near -20%.  In 1975, the return was near 40%
• In 1981, the return in the S&P index was near -10%.  In 1982, the return was near 30%
• In 1990, the return in the S&P index was near -10%.  In 1991, the return was near 40%
• In 2001, the return in the S&P index was near -20%.  In 2003, the return was near 30%

Given the fact that we have just entered into a recession and the financial markets have contracted, now looks like it could be a good time to invest.  See, once the economy turns around you stand to gain very healthy returns as a result of the value that has evaporated from world markets. This economic decline (unlike no other since the great depression) has given investors the ability to buy very cheap and undervalued investment instruments and make a lot of money once the economy expands again (and it will, it’s just amatter of when). 

Buying individual stocks is a risky proposition given that there is no way to know if/when the weakening economy has bottomed out.  However, blue chips are so attractive due to their resilience and ability to bounce back from adverse economic conditions.  After all, consumers will always need to purchase soup and soap while governments will always need to purchase steel for infrastructure projects etc.

-C