Why Smart Investors Buy During Times of Economic Uncertainty

In today’s market place, everyone is talking about the negative impact the recession has had on people’s wealth and standard of living. All you hear is how businesses are losing money, laying off workers, investors losing their savings and the list goes on and on.

However, nobody is talking about the massive opportunity that this recession presents to everyday people like you and me. For example, if you look at the price of stocks and real estate, they are down significantly. Currently, the focus is on how these assets have performed recently.

Nobody is talking about the fact that there are rock solid companies trading at dirt cheap price or that one can pick up prime real estate properties 10-20% below current market value.

While the mainstream media may not be pointing out these opportunities, astute investors have identified this opportunity and jumped on it. Here are a few examples:

1. Warren Buffet (one of the most successful investors of our time)has spent tens of billions of dollars buying banks and insurance companies in 2008 and 2009.

2. Oil companies have used the price correction in the share price of their competitors as a buying opportunity and purchased them completely. Suncor purchased Petro Canada for more than $20 billion dollars. However, at today’s market price, Suncor got Petro Canada at a 30% discount compared to the peak share price of the company a year ago.

Today, Sinopec (a state controlled Chinese Oil Firm) purchased Addaxx Petroleum for $8 Billion.

3. Bank of America purchase Citywide Financial close to a 90% discount from its peak valuation in 2008.

4. Nokia just entered into an agreement to purchase Nortel’s Wireless unit at a fraction of what it its worth.

5. Fiat is buying Chrysler for below book value. By the way, Fiat is not like your ordinary North American auto company. They are thriving relative to their competition and have the money to buy their broke competitors.

So the question becomes:

Why are these large sophisticated investors and companies spending billions of dollars buying assets in today’s recession?

Do they know something the rest of us don’t know?

Why didn’t Warren Buffet, Suncor, Bank of America and Nokia buy these companies when times were better and economy was growing at 3 % a year? Was then not a good time to buy instead of now?

The answer is:

1. Astute investors make decisions based on fundamentals and strength of the asset, not on emotion and fear. They are able to see past today’s recession and see long-term opportunity for growth.

2. They know that the best way to make money over the long term is to buy solid assets at deep discounts. For them, this is a ripe season to pick up such assets and profit handsomely when the market starts growing again. An excellent example of this is when Donald Trump bought 40 Wall Street (office tower) for $1 million dollars during the 1980’s recession. Now its worth hundreds of millions of dollars!

3. They realize that you can’t get discounts on stocks, companies and/or real estate when times are good.

So when you are presented with an opportunity to buy any investment in today’s economy, don’t be shackled by the fact that we are in a recession. Do your homework and make sure that the investment you are buying is of high quality. Once the market turns, these high quality companies or properties will make you a handsome profit. Also, be comforted that you are buying quality assets at a discount. Which opportunity would you rather choose buy quality assets at high market value or buy them at significant discounts. Your choice will dictate your success.

I rather chose the second option. Happy investing!